10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________________

Commission file number: 000-22427

HESKA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	77-0192527
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3760 Rocky Mountain Avenue Loveland, Colorado	80538
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (970) 493-7272

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	HSKA	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated Filer ☒
Non-accelerated filer ☐	Smaller Reporting Company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒

9,454,771 shares of the Registrant's Public Common Stock, $.01 par value, were outstanding at November 4, 2020.

TABLE OF CONTENTS 

			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of (Loss) Income	2
		Condensed Consolidated Statements of Comprehensive (Loss) Income	3
		Condensed Consolidated Statements of Stockholders' Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
		Note 1, Operations and Summary of Significant Accounting Policies	6
		Note 2, Revenue	8
		Note 3, Acquisitions and Related Party Items	10
		Note 4, Investments in Unconsolidated Affiliates	15
		Note 5, Income Taxes	16
		Note 6, Leases	17
		Note 7, Earnings Per Share	19
		Note 8, Goodwill and Other Intangibles	20
		Note 9, Property and Equipment, Net	22
		Note 10, Inventories	22
		Note 11, Accrued Liabilities	23
		Note 12, Capital Stock	23
		Note 13, Accumulated Other Comprehensive Income	24
		Note 14, Commitments and Contingencies	24
		Note 15, Interest and Other Expense (Income), Net	25
		Note 16, Convertible Notes and Credit Facility	25
		Note 17, Segment Reporting	27
		Note 18, Subsequent Events	29
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
	Item 4.	Controls and Procedures	41
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	41
	Item 1A.	Risk Factors	41
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 6.	Exhibits	43
		Signatures	46

HESKA, scil, scil vet, scil vet academy, scil VIP, Vet ABC, ALLERCEPT, HemaTrue, Solo Step, Element DC, Element HT5, Element POC, Element i, Element i+, Element COAG, Element DC5X and Element RC are registered trademarks of Heska Corporation. DRI-CHEM is a registered trademark of FUJIFILM Corporation. TRI-HEART is a registered trademark of Intervet Inc., d/b/a Merck Animal Health, formerly known as Schering-Plough Animal Health Corporation ("Merck Animal Health"), which is a unit of Merck & Co., Inc., in the United States and is a registered trademark of Heska Corporation in other countries. This quarterly report on Form 10-Q also refers to trademarks and trade names of other organizations.

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Our Certificate of Incorporation, as amended (the “Charter”), authorizes three classes of stock: Original Common Stock, Public Common Stock, and Preferred Stock. Pursuant to an NOL Protective Amendment to the Charter adopted in 2010, all shares of Original Common Stock then outstanding were automatically reclassified into shares of Public Common Stock. Our Public Common Stock trades on the Nasdaq Stock Market LLC. In this Quarterly Report on Form 10-Q, references to “Public Common Stock” and “Common Stock” are references to our Public Common Stock, unless the context otherwise requires.

Statement Regarding Forward Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For this purpose, any statements contained herein that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "scheduled," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially from those expressed or forecasted in any such forward-looking statements as a result of certain factors. Such factors are set forth in "Risk Factors," in this Form 10-Q and in our Annual Report on Form 10-K, as well as in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q and include, among others, risks and uncertainties related to:

•the impact of the COVID-19 pandemic on consumer demand, our global supply chain and our financial and operational results;

•the success of third parties in marketing our products;

•outside business interests of our Chief Executive Officer;

•our reliance on third party suppliers and collaborative partners;

•our dependence on key personnel;

•our dependence upon a number of significant customers;

•competitive conditions in our industry;

•our ability to market and sell our products successfully;

•expansion of our international operations;

•the impact of regulation on our business;

•the success of our acquisitions and other strategic development opportunities;

•our ability to develop, commercialize and gain market acceptance of our products;

•cybersecurity incidents and related disruptions and our ability to protect our stakeholders’ privacy;

•product returns or liabilities;

•volatility of our stock price; and

•our ability to service our convertible notes and comply with their terms.

Readers are cautioned not to place undue reliance on these forward-looking statements.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect the passage of time, any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as otherwise required by applicable securities laws. These forward-looking statements apply only as of the date of this Form 10-Q.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

	September 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	84,508	$	89,030
Accounts receivable, net of allowance for doubtful accounts of $693 and $186, respectively	27,062		15,161
Inventories	39,348		26,601
Net investment in leases, current, net of allowance for doubtful accounts of $110 and $105, respectively	4,726		3,856
Prepaid expenses	4,735		2,219
Other current assets	5,848		3,000
Total current assets	166,227		139,867
Property and equipment, net	34,997		15,469
Operating lease right-of-use assets	5,804		5,726
Goodwill	85,302		36,204
Other intangible assets, net	55,295		11,472
Deferred tax asset, net	5,170		6,429
Net investment in leases, non-current	15,527		14,307
Investments in unconsolidated affiliates	7,185		7,424
Other non-current assets	8,368		7,526
Total assets	$	383,875	$	244,424
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	12,277	$	6,600
Accrued liabilities	13,290		6,345
Accrued purchase consideration payable	—		14,579
Operating lease liabilities, current	2,099		1,745
Deferred revenue, current, and other	5,853		2,930
Total current liabilities	33,519		32,199
Convertible note, non-current, net	49,921		45,348
Deferred revenue, non-current	4,689		5,966
Other long-term borrowings	621		1,121
Related party loan	1,186		—
Operating lease liabilities, non-current	4,177		4,413
Deferred tax liability	14,653		691
Other liabilities	398		152
Total liabilities	109,164		89,890
Redeemable non-controlling interest and mezzanine equity	(171)		170
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding	—		—
Common stock, $.01 par value, 13,250,000 and 10,250,000 shares authorized, respectively, none issued or outstanding	—		—
Public common stock, $.01 par value, 13,250,000 and 10,250,000 shares authorized, 9,454,771 and 7,881,928 shares issued and outstanding, respectively	95		79
Additional paid-in capital	420,314		290,216
Accumulated other comprehensive income	7,799		513
Accumulated deficit	(153,326)		(136,444)
Total stockholders' equity	274,882		154,364
Total liabilities, mezzanine equity and stockholders' equity	$	383,875	$	244,424

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue, net	$	56,636	$	31,237	$	133,001	$	88,894
Cost of revenue	33,232		17,573		78,285		50,275
Gross profit	23,404		13,664		54,716		38,619
Operating expenses:
Selling and marketing	10,751		6,709		27,714		20,457
Research and development	2,197		2,532		6,021		6,137
General and administrative	10,253		4,230		29,852		12,473
Total operating expenses	23,201		13,471		63,587		39,067
Operating income (loss)	203		193		(8,871)		(448)
Interest and other expense, net	2,011		927		6,353		932
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,808)		(734)		(15,224)		(1,380)
Income tax expense (benefit):
Current income tax expense	370		40		425		112
Deferred income tax expense (benefit)	3,043		(570)		1,268		(2,078)
Total income tax expense (benefit)	3,413		(530)		1,693		(1,966)
Net (loss) income before equity in losses of unconsolidated affiliates	(5,221)		(204)		(16,917)		586
Equity in losses of unconsolidated affiliates	(83)		(147)		(300)		(455)
Net (loss) income after equity in losses of unconsolidated affiliates	(5,304)		(351)		(17,217)		131
Net loss attributable to redeemable non-controlling interest	(85)		(41)		(353)		(132)
Net (loss) income attributable to Heska Corporation	$	(5,219)	$	(310)	$	(16,864)	$	263
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.04
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.03
Weighted average outstanding shares used to compute basic (loss) earnings per share attributable to Heska Corporation	9,123		7,501		8,486		7,461
Weighted average outstanding shares used to compute diluted (loss) earnings per share attributable to Heska Corporation	9,123		7,501		8,486		7,960

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands) 

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income after equity in losses of unconsolidated affiliates	$	(5,304)	$	(351)	$	(17,217)	$	131
Other comprehensive (loss) income:
Translation adjustments and gains (losses) from intra-entity transactions	5,426		(158)		7,286		(137)
Comprehensive (loss) income	122		(509)		(9,931)		(6)
Comprehensive loss attributable to redeemable non-controlling interest	(85)		(41)		(353)		(132)
Comprehensive (loss) income attributable to Heska Corporation	$	207	$	(468)	$	(9,578)	$	126

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands) 

(unaudited)

	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
Three Months Ended September 30, 2019 and 2020	Shares	Amount		Shares	Amount
Balances, June 30, 2019	—	$	—	7,794	$	78	$	256,952	$	298	$	(134,406)	$	122,922
Net loss attributable to Heska Corporation	—	—		—	—		—		—		(310)		(310)
Issuance of common stock, net of shares withheld for employee taxes	—	—		30	—		213		—		—		213
Stock-based compensation	—	—		—	—		1,246		—		—		1,246
Convertible notes, equity	—	—		—	—		29,770		—		—		29,770
Other comprehensive loss	—	—		—	—		—		(158)		—		(158)
Balances, September 30, 2019	—	$	—	7,824	$	78	$	288,181	$	140	$	(134,716)	$	153,683
Balances, June 30, 2020	—	$	—	9,415	$	94	$	415,687	$	2,373	$	(148,107)	$	270,047
Net loss attributable to Heska Corporation	—	—		—	—		—		—		(5,219)		(5,219)
Issuance of common stock, net of shares withheld for employee taxes	—	—		40	1		495		—		—		496
Stock-based compensation	—	—		—	—		4,132		—		—		4,132
Other comprehensive income	—	—		—	—		—		5,426		—		5,426
Balances, September 30, 2020	—	$	—	9,455	$	95	$	420,314	$	7,799	$	(153,326)	$	274,882
Note: Excludes amounts related to redeemable non-controlling interests recorded in mezzanine equity.
	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
Nine Months Ended September 30, 2019 and 2020	Shares	Amount		Shares	Amount
Balances, December 31, 2018	—	$	—	7,676	$	77	$	257,034	$	277	$	(134,979)	$	122,409
Net income attributable to Heska Corporation	—	—		—	—		—		—		263		263
Issuance of common stock, net of shares withheld for employee taxes	—	—		148	1		(2,248)		—		—		(2,247)
Stock-based compensation	—	—		—	—		3,625		—		—		3,625
Convertible notes, equity	—	—		—	—		29,770		—		—		29,770
Other comprehensive loss	—	—		—	—		—		(137)		—		(137)
Balances, September 30, 2019	—	$	—	7,824	$	78	$	288,181	$	140	$	(134,716)	$	153,683
Balances, December 31, 2019	—	$	—	7,882	$	79	$	290,216	$	513	$	(136,444)	$	154,364
Adoption of accounting standards	—	—		—	—		—		—		(18)		(18)
Balances, January 1, 2020	—	—		7,882	79		290,216		513		(136,462)		154,346
Net loss attributable to Heska Corporation	—	—		—	—		—		—		(16,864)		(16,864)
Issuance of common stock, net of shares withheld for employee taxes	—	—		64	1		1,397		—		—		1,398
Issuance of preferred stock, net of issuance costs	122	1					121,785		—		—		121,786
Conversion of preferred stock to common stock	(122)	(1)		1,509	15		(14)		—		—		—
Stock-based compensation	—	—		—	—		6,930		—		—		6,930
Other comprehensive income	—	—		—	—		—		7,286		—		7,286
Balances, September 30, 2020	—	$	—	9,455	$	95	$	420,314	$	7,799	$	(153,326)	$	274,882
Note: Excludes amounts related to redeemable non-controlling interests recorded in mezzanine equity.

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income after equity in losses from unconsolidated affiliates	$	(17,217)	$	131
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
Depreciation and amortization	8,041		3,759
Non-cash impact of operating leases	1,431		1,126
Deferred income tax expense (benefit)	1,268		(2,078)
Stock-based compensation	6,930		3,625
Equity in losses of unconsolidated affiliates	300		455
Amortization of debt discount and issuance costs	4,573		282
Other losses	62		340
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable	(1,813)		2,808
Inventories	(3,901)		(438)
Other assets	(1,423)		(3,113)
Accounts payable	(2,708)		(2,491)
Due to related parties	—		(226)
Other liabilities	(3,644)		(7,456)
Net cash used in operating activities	(8,101)		(3,276)
Cash flows from investing activities:
Investment in subsidiary, net of cash acquired	—		(622)
Acquisition of CVM	(14,420)		—
Purchases of property and equipment	(486)		(722)
Acquisition of scil, net of cash acquired	(105,137)		—
Net cash used in investing activities	(120,043)		(1,344)
Cash flows from financing activities:
Borrowings on line of credit	—		6,750
Repayments of line of credit borrowings	—		(12,750)
Payment of debt issuance costs	—		(3,072)
Payment of preferred stock issuance costs	(214)		—
Preferred stock proceeds	122,000		—
Convertible debt proceeds	—		86,250
Proceeds from issuance of common stock	2,050		1,233
Repurchase of common stock	(652)		(3,480)
Repayments of other debt	(193)		(1,164)
Borrowings on other debts	508		—
Net cash provided by financing activities	123,499		73,767
Foreign exchange effect on cash and cash equivalents	123		(31)
Net increase (decrease) in cash and cash equivalents	(4,522)		69,116
Cash and cash equivalents, beginning of period	89,030		13,389
Cash and cash equivalents, end of period	$	84,508	$	82,505
Supplemental disclosure of cash flow information:
Non-cash transfers of equipment between inventory and property and equipment, net	$	3,328	$	1,118
Non-cash conversion of preferred stock to common stock	$	122,000	$	—
Accrued debt issuance costs	$	—	$	105
Purchase price adjustment receivable for scil	$	1,273	$	—
Capex purchases - accrued but unpaid	$	40	$	—

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Heska Corporation and its wholly-owned subsidiaries ("Heska", the "Company", "we" or "our") sell veterinary and animal health diagnostic and specialty products. Our offerings include Point of Care diagnostic laboratory instruments and supplies; digital imaging diagnostic products, software and services; vaccines; local and cloud-based data services; allergy testing and immunotherapy; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on supporting veterinarians in the canine and feline healthcare space.

Basis of Presentation and Consolidation

The accompanying interim Condensed Consolidated Financial Statements are unaudited. The interim unaudited Condensed Consolidated Financial Statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal, recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2020, and the results of our operations and statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019.

The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. Our unaudited Condensed Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries since their respective dates of acquisitions. All intercompany accounts and transactions have been eliminated in consolidation. Where our ownership of a subsidiary is less than 100%, the non-controlling interest is reported on our Condensed Consolidated Balance Sheets. The non-controlling interest in our consolidated net income is reported as "Net loss attributable to redeemable non-controlling interest" on our Condensed Consolidated Statements of (Loss) Income. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any future period, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies as described below. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other financial information filed with the SEC.

Beginning in the first quarter of 2020, to limit the spread of COVID-19, governments took various actions including the issuance of stay-at-home policies and social distancing procedures and guidelines, causing some businesses to adjust, reduce or suspend business and operating activities. Veterinary care is widely recognized as an "essential" service for pet owners, and veterinarians continued to deliver essential medical care for sick and injured pets. The stay-at-home policies deployed early in 2020 to combat the spread of COVID-19 resulted in a decrease in companion animal clinical visits, including delay of elective procedures and wellness visits and as a result lowers demand for diagnostic testing services. During the second and third quarters of 2020, certain local, state and federal governments began to ease the stay-at-home policies and allowed more businesses and facilities to re-open, leading to a recovery in companion animal clinical visits and associated demand for our diagnostic products. The extent to which the continuation, or a possible second-wave outbreak of COVID-19, or an outbreak of other health epidemics could impact our business, results of operations and financial condition, including the potential for write-offs or impairments of assets and suspension of capital investments, will depend on future developments. We are unable to predict with certainty the effects of the COVID-19 pandemic on our customers, suppliers and vendors, as well as the actions of governments, and

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

when and to what extent normal economic and operating conditions can resume; these effects may differ from those assumed in our projected estimates. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic impact that has occurred or may occur in the future.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the net realizable value of inventory; determining future costs associated with warranties provided; determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights; evaluating long-lived and intangible assets and investments for estimated useful lives and impairment; estimating the useful lives of instruments under leasing arrangements; determining the allocation of purchase price under purchase accounting; estimating the expense associated with the granting of stock; determining the need for, and the amount of a valuation allowance on deferred tax assets; determining the value of the non-controlling interest in a business combination; and determining the fair value of the liability component associated with the issuance of convertible debt. We have made estimates of the impact of the COVID-19 pandemic within our financial statements, and our actual results may differ from these estimates and there may be changes to those estimates in future periods.

Critical Accounting Policies

Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019, and other than the recently adopted accounting pronouncements described below have not changed materially since such filing.

Adoption of New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in November 2018. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which further clarifies and improves guidance related to accounting for credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). This ASU provides relief to certain entities adopting ASU 2016-13. The amendment provides entities with an option to irrevocably elect the fair value option for certain financial assets.

The Company adopted ASU 2016-13 with a cumulative-effect adjustment in retained earnings as of January 1, 2020. The impact of the adoption was not material to the Company's consolidated financial statements. We

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continuously monitor our customers' credit worthiness and establish allowances for estimated credit losses related to our accounts receivable, net investment in leases, and promissory notes. Our allowances are established based on factors surrounding the credit risk of specific customers, historical experience including collections and write-off history, and current economic conditions. Account balances are considered past due if payments have not been received within agreed upon invoice and/or contract terms and the Company may employ collection agencies and legal counsel to pursue recovery of defaulted amounts. Account balances are written off against the allowance after all collection efforts have been exhausted and it is probable the receivable will not be recovered. The Company also performs a qualitative assessment, on a quarterly basis, to monitor economic factors and other uncertainties that may require additional adjustments for the expected credit loss allowance. The Company will continue to actively monitor the impact of the recent coronavirus ("COVID-19") pandemic on expected credit losses.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740, and also clarifies and amends existing guidance to improve consistent application. This guidance will be effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This guidance will be effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of this update on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which simplifies the accounting for certain convertible instruments. The update reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible debt will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

2.     REVENUE

We separate our goods and services among two reportable segments, North America and International. The two segments consist of revenue originating from:

•North America: including the United States, Canada and Mexico

•International: all geographies outside North America, including Australia, France, Germany, Italy, Malaysia, Spain and Switzerland

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Refer to Note 17 for further detail regarding the change in reportable segments which required recast of prior period presentation.

The following table summarizes our segment revenue (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
North America Revenue:
POC Lab Instruments & Other	$	2,458	$	1,916	$	5,772	$	5,222
Sales-type leases	1,310		1,587		3,574		4,821
POC Lab Consumables	16,071		13,953		43,294		39,452
POC Imaging	5,268		4,550		12,912		13,781
PVD	5,437		2,702		14,821		8,093
OVP	3,906		4,897		10,708		13,123
Total North America Revenue	$	34,450	$	29,605	$	91,081	$	84,492
International Revenue:
POC Lab Instruments & Other	$	2,643	$	1	$	4,759	$	17
Sales-type leases	277		—		601		—
POC Lab Consumables	11,387		70		21,418		94
POC Imaging	7,029		785		12,791		2,194
PVD	850		776		2,351		2,097
OVP	—		—		—		—
Total International Revenue	$	22,186	$	1,632	$	41,920	$	4,402
Total Revenue	$	56,636	$	31,237	$	133,001	$	88,894

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include non-cancelable purchase orders, the non-lease portion of minimum purchase commitments under long-term supply arrangements, extended warranty, service and other long-term contracts. Remaining performance obligations do not include revenue from contracts with customers with an original term of one year or less, revenue from long-term supply arrangements with no minimum purchase requirements, revenue expected from purchases made in excess of the minimum purchase requirements, or revenue from instruments leased to customers. While the remaining performance obligation disclosure is similar in concept to backlog, the definition of remaining performance obligations excludes leases and contracts that provide the customer with the right to cancel or terminate for convenience with no substantial penalty, even if historical experience indicates the likelihood of cancellation or termination is remote. Additionally, the Company has elected to exclude contracts with customers with an original term of one year or less from remaining performance obligations.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining minimum performance obligations was approximately $135.5 million. As of September 30, 2020, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2020 (remaining)	$	7,773
2021	30,342
2022	27,155
2023	24,349
2024	20,007
Thereafter	25,843
	$	135,469

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled contract asssets, deferred revenue, and customer deposits and billings in excess of revenue recognized. In addition, the Company defers certain costs incurred to obtain contracts.

Contract Asset

Certain unbilled amounts related to long-term contracts for which we provide a free term to the customer are recorded in "Other current assets" and "Other non-current assets" on the accompanying Condensed Consolidated Balance Sheets. The collection of these balances occurs over the term of the underlying contract. The balances as of September 30, 2020 were $1.3 million and $4.0 million for current and non-current assets, respectively, shown net of related unearned interest. The balances as of December 31, 2019 were $1.1 million and $3.7 million for current and non-current assets, respectively, shown net of related unearned interest.

Contract Liabilities

The Company receives cash payments from customers for licensing fees or other arrangements that extend for a specified term. These contract liabilities are classified as either current or long-term in the Condensed Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. As of September 30, 2020 and December 31, 2019, contract liabilities were $8.2 million and $8.7 million, respectively, and are included within "Deferred revenue, current, and other" and "Deferred revenue, non-current" in the accompanying Condensed Consolidated Balance Sheets. The decrease in the contract liability balance during the nine-month period ended September 30, 2020 is approximately $3.4 million of revenue recognized during the period, offset by approximately $2.3 million of additional deferred sales in 2020 and the acquisition of scil contract liabilities of $0.6 million. Contract liabilities are reported on the accompanying Condensed Consolidated Balance Sheets on a contract-by-contract basis.

3.    ACQUISITIONS AND RELATED PARTY ITEMS

scil Acquisition

On April 1, 2020, the Company completed the acquisition of scil animal care company GmbH (“scil”) from Covetrus, Inc. At closing, the Company paid approximately $111.0 million in cash to acquire 100% of the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

capital stock of scil. The acquisition represents a key milestone in the Company's long-term strategic plan creating a global veterinary diagnostics company with leadership positions in key geographic markets.

The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of April 1, 2020. The total purchase consideration is subject to customary working capital adjustments.

In the third quarter of 2020, the estimated purchase consideration decreased to approximately $109.8 million as a result of post-closing adjustments to the settlement exchange rate, the net working capital and other adjustments. The resulting goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the experienced workforce acquired. Of the $45.8 million of goodwill acquired, $37.3 million is allocated to our International segment and $8.5 million is allocated to our North America segment. All of the goodwill is tax deductible for U.S. federal income tax purposes which may result in a decrease to the Company's future U.S. federal tax liability.

The information below represents the preliminary purchase price allocation of scil (in thousands):

	April 1, 2020
Total purchase consideration	$	109,753
Cash and cash equivalents	5,889
Accounts receivable	10,707
Inventories	11,349
Net investment in leases, current	311
Prepaid expenses	1,404
Other current assets	405
Property and equipment, net	19,320
Operating lease right-of-use assets	877
Other intangible assets, net	44,517
Net investment in leases, non-current	1,027
Investments in unconsolidated affiliates	55
Other non-current assets	291
Total assets acquired	96,152
Accounts payable	8,221
Accrued liabilities	6,355
Operating lease liabilities, current	356
Deferred revenue, current, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred tax liability	13,147
Other liabilities	276
Net assets acquired	63,954
Goodwill	45,799
Total fair value of consideration transferred	$	109,753

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information currently available, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the acquisition. Among items still being evaluated is an existing uncertain tax position of approximately $1.0 million that scil had prior to acquisition. The uncertain tax position may or may not change based on the results of the evaluation. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the acquisition from those valuations would result in a corresponding change in the amount of goodwill from the acquisition. During the third quarter of 2020, the Company reclassified certain assets and liabilities to align with the presentation of our Condensed Consolidated Balance Sheet. There were no significant measurement period adjustments to the fair value of assets acquired and liabilities assumed.

Intangible assets acquired, amortization method and estimated useful life as of April 1, 2020, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	10 years	Straight-line	$	36,272
Internally developed software	7 years	Straight-line	353
Backlog	0.2 years	Straight-line	210
Non-compete agreements	2 years	Straight-line	60
Trade name subject to amortization	0.8 years	Straight-line	66
Trademarks and trade names not subject to amortization	n/a	Indefinite	7,556
Total intangible assets acquired			$	44,517

scil generated net revenue of $37.7 million and a net loss of $0.2 million for the period from April 1, 2020 to September 30, 2020.

The Company incurred acquisition related costs of approximately $0.7 million and $5.7 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.

Unaudited Pro Forma Financial Information

The following tables present unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2019 (in thousands):

	Nine Months Ended September 30, 2020
Revenue, net	$	151,522
Net (loss) income before equity in losses of unconsolidated affiliates	$	(17,733)
Net (loss) income attributable to Heska Corporation	$	(17,680)

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	49,346	$	144,372
Net (loss) income before equity in losses of unconsolidated affiliates	$	(451)	$	(1,407)
Net (loss) income attributable to Heska Corporation	$	(557)	$	(1,730)

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of scil and further reflects the effect of purchase accounting adjustments, including: (i) amortization of acquired intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property, plant and equipment, and (iii) historical intercompany sales between the Company and scil. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

CVM

On December 5, 2019, Heska entered into a definitive agreement to purchase 100% of the outstanding shares of CVM Diagnostico Veternario S.L. and CVM Ecografia S.L. (collectively, “CVM”), primarily to expand international operations in Europe. CVM is headquartered in Tudela, outside of Madrid, Spain. CVM mainly operates in Spain. The terms of the agreement transferred control of CVM upon signing, and the transfer of the purchase price of approximately $14.4 million and shares occurred in January 2020. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $9.0 million was allocated to goodwill within the International segment based on the preliminary purchase price allocation, all of which is tax deductible for U.S. federal income tax purposes.

The preliminary fair values allocated to CVM's assets and liabilities as of the acquisition date, as well as the purchase price, are reflected in the table below (in thousands):

	December 5, 2019
Consideration paid to former owners	$	14,420
Cash and cash equivalents	1,226
Accounts receivable	583
Inventories	1,621
Other current assets	1,186
Property and equipment	345
Other intangible assets	2,608
Other non-current assets	460
Total assets acquired	8,029
Accounts payable	(94)
Accrued liabilities	(471)
Current portion of deferred revenue, and other	(54)
Deferred tax liability	(683)
Other long-term borrowings	(1,109)
Other liabilities	(157)
Net assets acquired	5,461
Goodwill	8,959
Total fair value of consideration transferred	$	14,420

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

acquisition. During the nine months ended September 30, 2020, the Company made certain valuation adjustments to provisional amounts previously recognized. These adjustments resulted in a net $110 thousand increase of goodwill, primarily due to fair value adjustments resulting in a decrease in net identifiable assets acquired.

Intangible assets acquired, amortization method and estimated useful life as of December 5, 2019, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	6 years	Straight-line	$	2,440
Trade name	4 years	Straight-line	111
Developed technology	n/a	Indefinite	57
			$	2,608

CVM generated net revenue of $0.8 million and net income of $0.1 million, for the period from December 6, 2019 to December 31, 2019. CVM generated net revenue of $2.2 million and $5.2 million and net income of $0.3 million and $0.4 million for the three and nine months ended September 30, 2020, respectively.

The Company incurred acquisition related costs of approximately $44 thousand and $0.3 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.

Unaudited Pro Forma Financial Information

The following table presents unaudited supplemental pro forma financial information as if the CVM acquisition had occurred on January 1, 2019 (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	32,910	$	94,462
Net (loss) income before equity in losses of unconsolidated affiliates	$	164	$	789
Net (loss) income attributable to Heska Corporation	$	58	$	466

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of CVM and further reflects the effect of purchase accounting adjustments. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

CVM management conducts related party activities with Practice Clinicas Veterinarias Moviles, S.L. ("CVM Practice"), which is owned by CVM's management. CVM leases two warehouses from CVM Practice and is the debtor of two loans with CVM Practice. CVM Practice charged CVM $23 thousand and $0 during the nine months ended September 30, 2020 and 2019, respectively, all of which is related to lease payments. The right-of-use asset and lease liability amounts related to the warehouse leases were approximately $169 thousand and $0 as of September 30, 2020 and December 31, 2019, respectively. All accrued interest is due upon termination of the loans with CVM Practice and as such, the amount due includes principal and interest. The Company had payables to CVM Practice of approximately $1.2 million and $0 as of September 30, 2020 and December 31, 2019, respectively, which is included in "Related party loan" on the Company's Condensed Consolidated Balance Sheet. The change from December 31, 2019 to September 30, 2020 is due

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

to a reorganization regarding CVM management and the control that they exercise subsequent to the scil acquisition.

Other Related Party Activities

Cuattro, LLC ("Cuattro"), which is owned by Kevin S. Wilson, the CEO and President of the Company, in addition to Mrs. Wilson and trusts for the benefit of Mr. and Mrs. Wilson's children and family, charged Heska Imaging $0 and $6 thousand during the nine months ended September 30, 2020 and 2019, respectively. The 2019 charges primarily related to digital imaging products, pursuant to an underlying supply contract that contains minimum purchase obligations, software and services as well as other operating expenses. Pursuant to the December 21, 2018 transaction in which the Company acquired certain assets from Cuattro, Cuattro was obligated, without further compensation, to assist the Company with the implementation of a third-party image hosting platform and necessary data migration. The implementation and migration were completed, on schedule, as of September 30, 2020 and as such there will be no further related party activities with Cuattro.

The Company had no receivables from or payables to Cuattro as of September 30, 2020 or December 31, 2019.

4.    INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The carrying values of investments in unconsolidated affiliates, categorized by type of investment, is as follows (in thousands):

	September 30, 2020		December 31, 2019
Equity method investment	$	4,167	$	4,406
Non-marketable equity security investment	3,018		3,018
	$	7,185	$	7,424

Equity Method Investment

On September 24, 2018, we invested approximately $5.1 million, including costs, to acquire an equity interest in a business as part of our product development strategy. As of September 30, 2020, our ownership interest in the business was 29.1%. In connection with the investment, the Company entered into a Manufacturing Supply Agreement that grants the Company global exclusivity to specified products to be delivered under the agreement for a 15-year period that begins upon the Company's receipt and acceptance of an initial order under the agreement. The Company accounts for this investment using the equity method of accounting. Under the equity method, the carrying value of the investment is adjusted for the Company's proportionate share of the investee's reported earnings or losses with the corresponding share of earnings or losses reported as Equity in losses of unconsolidated affiliates, listed below Net income before equity in losses of unconsolidated affiliates within the Condensed Consolidated Statements of (Loss) Income.

Non-Marketable Equity Security Investment

On August 8, 2018, the Company invested approximately $3.0 million, including costs, in exchange for preferred stock. The Company’s investment is a non-marketable equity security, recorded using the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As part of the agreement, the Company entered into a Supply and License Agreement, which provides that the investee produce and commercialize products that will enhance the Company's diagnostic portfolio. As part of this agreement, the Company made an upfront payment of $1.0 million related to a worldwide exclusive license agreement over a 20-year period, recorded in both short and long-term other assets. In addition, the agreement provides for an additional contingent payment of $10.0 million, relating to the successful achievement of sales milestones. This potential future milestone payment has not yet been accrued as it is not deemed by the Company to be probable at this time.

Both parties in this arrangement are active participants and are exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. The parties are actively working on developing and testing the product as well as funding the research and development. Heska classifies the amounts paid for research and development work within the North America segment research and development operating expenses. Expense is recognized ratably when incurred and in accordance with the development plan.

5.    INCOME TAXES

Our total income tax expense/(benefit) for our loss before income taxes were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,808)	$	(734)	$	(15,224)	$	(1,380)
Total income tax expense (benefit)	$	3,413	$	(530)	$	1,693	$	(1,966)

There were cash payments for income taxes of $0.5 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, and there were cash payments of $1 thousand and cash refunds, net of payments, of $0.1 million, respectively, for income taxes for the three and nine months ended September 30, 2019. The Company’s tax expense was $3.4 million and $1.7 million for the three and nine months ended September 30, 2020, respectively, compared to the tax benefit of $0.5 million and $2.0 million for the three and nine months ended September 30, 2019, respectively. The increase in tax expense in the nine month period is due to the higher financial loss offset by a $3.9 million increase in the partial valuation allowance further discussed below. The Company recognized $0.1 million in excess tax benefits related to employee share-based compensation for the three months ended September 30, 2020, compared to $0.1 million recognized for the three months ended September 30, 2019. The Company recognized $0.5 million in excess tax benefits related to employee share-based compensation for the nine months ended September 30, 2020, compared to $1.5 million recognized for the nine months ended September 30, 2019.

The Company considered multiple factors in assessing the need for an increase in the partial valuation allowance against the Company’s deferred tax assets as of September 30, 2020. Significant factors such as the continued challenge and uncertainty of the COVID-19 pandemic, increased future stock compensation expenses from achievement of Company performance metrics, required capitalization of research and development expenses beginning in 2022 and acquisition related expenses from our business growth strategy have negatively impacted our future taxable income projections. These future projections indicate a larger portion of the company’s deferred tax assets will likely expire unrealized. As a result, the Company recorded an additional $3.6 million tax effected increase to the current partial valuation allowance against the Company's deferred tax assets during the three months ended September 30, 2020. As of September 30, 2020, the Company had a gross federal net operating loss carryforward of approximately $47.0 million and a gross partial valuation allowance of approximately $40.0 million recorded against the carryforward. The Company

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

will continue to closely monitor the need for an additional valuation allowance against its deferred tax assets in each subsequent reporting period which can be impacted by actual operating results compared to the Company's forecast.

6.    LEASES

Lessee Accounting

The Company leases buildings, office equipment, and vehicles. The following table summarizes the Company's operating and finance lease balances (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	5,804	$	5,726
Finance	Property and equipment, net	1,824		81
Total Leased Assets		$	7,628	$	5,807
Liabilities
Operating	Operating lease liabilities, current	$	2,099	$	1,745
	Operating lease liabilities, non-current	4,177		4,413
Finance	Deferred revenue, current, and other	291		47
	Other liabilities	283		37
Total Lease Liabilities		$	6,850	$	6,242

For the three and nine months ended September 30, 2020, operating lease expense was approximately $0.7 million and $2.0 million, respectively, including immaterial variable lease costs. For the three and nine months ended September 30, 2019, operating lease expense was approximately $0.6 million and $1.8 million, respectively, including immaterial variable lease costs.

For the three and nine months ended September 30, 2020, finance lease amortization expense was $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2019, finance lease amortization expense was $18 thousand and $32 thousand, respectively. For the three and nine months ended September 30, 2020, finance lease interest expense was $4 thousand and $7 thousand, respectively. For the three and nine months ended September 30, 2019, finance lease interest expense was $2 thousand and $2 thousand, respectively.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Supplemental cash flow information related to the Company's operating and finance leases for the nine months ended September 30, 2020 and 2019, respectively, was as follows (in thousands):

	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - operating leases	$	1,617	$	1,344
Operating cash outflows - finance leases	$	6	$	2
Financing cash outflows - finance leases	$	166	$	25
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	636	$	498
Finance leases	$	120	$	10

The following table presents the weighted average remaining lease term and weighted average discount rate related to the Company's leases:

	September 30, 2020		December 31, 2019
Weighted average remaining lease term:
Operating	3.3 years		3.8 years
Finance	3.0 years		2.0 years
Weighted average discount rate:
Operating	4.2	%	4.4	%
Finance	2.2	%	4.0	%

The following table presents the maturity of the Company's lease liabilities as of September 30, 2020 (in thousands):

Year Ending December 31,	Operating Leases		Finance Leases
Remainder of 2020	$	817	$	80
2021	1,932		265
2022	1,678		121
2023	1,893		47
2024	128		37
Thereafter	260		43
Total lease payments	6,708		593
Less: imputed interest	432		19
Total lease liabilities	$	6,276	$	574

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Lessor Accounting

The Company enters into sales-type leases as part of our subscription agreements. The following table presents the maturity of the Company's lease receivables as of September 30, 2020 (in thousands):

Year Ending December 31,
Remainder of 2020	$	1,192
2021	4,915
2022	4,643
2023	3,929
2024	2,960
Thereafter	2,733
Total undiscounted future maturities	20,372
Less: interest	119
Total lease receivables	$	20,253

7.    EARNINGS PER SHARE

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share ("EPS") for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income attributable to Heska Corporation	$	(5,219)	$	(310)	$	(16,864)	$	263
Basic weighted-average common shares outstanding	9,123		7,501		8,486		7,461
Assumed exercise of dilutive stock options and restricted shares	—		—		—		499
Diluted weighted-average common shares outstanding	$	9,123	$	7,501	$	8,486	$	7,960
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.04
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.03

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following potentially outstanding common shares from convertible preferred stock, convertible senior notes, stock options and restricted stock awards were excluded from the computation of diluted EPS because the effect would have been antidilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Convertible preferred stock	—	—	611	—
Convertible senior notes	123	—	56	—
Stock options and restricted stock	312	273	329	272
	435	273	996	272

As more fully described in Note 16, our Notes are convertible under certain circumstances, as defined in the indenture, into a combination of cash and shares of our common stock. The Company intends to settle the principal value of the Notes in cash and issue shares of our common stock to settle the intrinsic value of the conversion feature. The Company will use the treasury stock method when calculating the potential dilutive effect of the conversion feature on earnings per share, if any. Potential dilution upon conversion of the Notes occurs when the average market price per share of our common stock is greater than the conversion price of the Notes of $86.63. For the periods presented, all potentially dilutive shares relating to the Notes were not included in the computation of diluted EPS as the effect would have been anti-dilutive.

As discussed in Note 12, the Company issued and sold an aggregate of 122,000 shares of its Preferred Stock to certain investors in a private placement offering. The shares were converted into 1,508,964 shares of Public Common Stock, effective on April 21, 2020. The potential dilutive effect of the convertible preferred stock was calculated using the if-converted method for the period the preferred shares were outstanding. For the three and nine months ended September 30, 2020, these shares were excluded from the computation of diluted EPS because the effect would have been antidilutive.

8.    GOODWILL AND OTHER INTANGIBLES

The following summarizes the change in goodwill during the nine months ended September 30, 2020 (in thousands):

Carrying amount, December 31, 2019	$	36,204
Goodwill attributable to acquisitions	45,909
Foreign currency adjustments	3,189
Carrying amount, September 30, 2020	$	85,302

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other intangibles consisted of the following (in thousands):

	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount		Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships and other	$	45,053	$	(5,067)	$	39,986	$	6,205	$	(2,226)	$	3,979
Developed technology	8,648		(1,458)		7,190		8,200		(819)		7,381
Trade names	188		(76)		112		112		—		112
Intangible assets not subject to amortization:
Trade names	8,007		—		8,007		—		—		—
Total intangible assets	$	61,896	$	(6,601)	$	55,295	$	14,517	$	(3,045)	$	11,472

Amortization expense relating to other intangibles was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization expense	$	1,502	$	346	$	3,556	$	953

The remaining weighted-average amortization period for intangible assets is approximately 8.9 years.

Estimated amortization expense related to intangibles for each of the five years from 2020 (remaining) through 2024 and thereafter is as follows (in thousands):

Year Ending December 31,
2020 (remaining)	$	1,456
2021	5,696
2022	5,661
2023	5,300
2024	5,174
Thereafter	24,001
Total amortization related to finite-lived intangible assets	$	47,288
Indefinite-lived intangible assets	8,007
Net intangible assets	$	55,295

As a result of the recent global economic disruption and uncertainty due to the COVID-19 pandemic, the Company performed a qualitative assessment during the first quarter. Based on the interim assessment performed, we concluded that there was no triggering event and additionally, no indications of impairment existed. No triggering events were identified in the third quarter of 2020 to require additional impairment testing.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Land	$	2,460	$	694
Building	12,254		3,845
Machinery and equipment	38,811		28,777
Office furniture and equipment	2,004		1,345
Computer hardware and software	4,631		3,408
Leasehold and building improvements	10,696		10,558
Construction in progress	40		671
Property and equipment, gross	70,896		49,298
Less accumulated depreciation	(35,899)		(33,829)
Total property and equipment, net	$	34,997	$	15,469

The Company has subscription agreements whereby its instruments in inventory may be placed at a customer's location on a rental basis. For instruments classified as operating leases, the cost of these instruments is transferred to machinery and equipment and depreciated, typically over a 5 to 7 year period depending on the circumstance under which the instrument is placed with the customer. Our cost of instruments under operating leases as of September 30, 2020 and December 31, 2019, was $8.5 million and $8.1 million, respectively, before accumulated depreciation of $4.0 million and $4.6 million, respectively.

Depreciation expense was $1.7 million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively, and $4.3 million and $2.8 million for the nine months ended September 30, 2020 and 2019, respectively.

10.    INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Raw materials	$	12,201	$	14,597
Work in process	4,653		2,730
Finished goods	22,494		9,274
Total inventories	$	39,348	$	26,601

Inventories are measured on a first-in, first-out basis and stated at lower of cost or net realizable value.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.    ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Accrued payroll and employee benefits	$	5,792	$	1,175
Accrued property taxes	500		681
Accrued purchase orders	1,965		739
Accrued taxes	2,046		586
Other	2,987		3,164
Total accrued liabilities	$	13,290	$	6,345

Other accrued liabilities consist of items that are individually less than 5% of total current liabilities.

12.    CAPITAL STOCK

During the nine months ended September 30, 2020, the Company granted the following stock options and restricted stock awards:

	Nine Months Ended September 30, 2020
	Options/Awards Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	323,250	$	25.97
Restricted stock awards	65,284	$	83.35

The Company used the Black-Scholes option pricing model to determine the grant date fair value of stock options with service and/or company performance conditions. The model used the following weighted average assumptions: risk-free interest rate of 0.38%, expected volatility of 46.3% based on historical stock volatility, expected term of 5.31 years based on historical exercises, and no expected dividend yield. For stock options with market conditions, we utilized a Monte Carlo simulation model to estimate grant date fair value. Compensation cost is recognized ratably over the vesting periods of the options.

We valued the restricted stock awards related to service and/or company performance targets based on grant date fair value and will expense over the period when achievement of those conditions is deemed probable.

Series X Convertible Preferred Stock

On March 30, 2020, the Company completed a private placement offering in which the Company issued and sold an aggregate of 122,000 shares of its Series X Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"). The shares of Preferred Stock issued and sold were priced at $1,000 per share (the “Stated Value”), resulting in gross proceeds of $122.0 million, less issuance costs of $0.2 million. The Company used approximately $111.0 million of the proceeds from the offering to fund the April 1, 2020 acquisition of scil and plans to use the remaining proceeds for working capital and general corporate purposes.

The offering was made pursuant to the Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of January 12, 2020, by and among the Company and certain investors, and subsequent amendment (the “Securities Purchase Agreement Amendment”) to the Securities Purchase agreement, entered

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

into by the Company and each investor on March 30, 2020 (the Securities Purchase Agreement as amended by the Securities Purchase Agreement Amendment, the “Amended Securities Purchase Agreement”).

The shares of Preferred Stock were convertible into shares of the Company’s Common Stock at an initial ratio of approximately 12.4 shares of Common Stock for each share of Preferred Stock (equivalent to a conversion price of approximately $80.85 per share of common stock), at the option of the holders of the Preferred Stock or the Company, subject to the Company possessing sufficient unissued and otherwise unreserved shares of Common Stock under the Company’s Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”). On April 14, 2020, the Company gave notice of its exercise of its right to convert the 122,000 shares of Preferred Stock into 1,508,964 shares of Public Common Stock (the "Conversion Shares") and the conversion was effective on April 21, 2020. The conversion resulted in dilution of less than 20% of total shares of the Company’s Public Common Stock currently issued and outstanding. A registration statement on Form S-3 (File No. 333-238005) registering the Conversion Shares for resale was filed by us with the SEC on May 5, 2020.

13.    ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) consisted of the following (in thousands):

	Minimum Pension Liability		Foreign Currency Translation		Foreign Currency Gain on Intra-Entity Transactions		Total Accumulated Other Comprehensive Income
Balances at December 31, 2019	$	(346)	$	859	$	—	$	513
Current period other comprehensive income	—		1,798		5,488		7,286
Balances at September 30, 2020	$	(346)	$	2,657	$	5,488	$	7,799

14.    COMMITMENTS AND CONTINGENCIES

Warranties

The Company's current terms and conditions of sale include a limited warranty that its products and services will conform to published specifications at the time of shipment and a more extensive warranty related to certain products. The Company also sells a renewal warranty for certain of its products. The typical remedy for breach of warranty is to correct or replace any defective product, and if not possible or practical, the Company will accept the return of the defective product and refund the amount paid. Historically, the Company has incurred minimal warranty costs. The Company's warranty reserve was $0.6 million and $0.3 million as of September 30, 2020 and December 31, 2019, respectively.

Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of its operations. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred, and the amount can be reasonably estimated.

On February 18, 2020, a former managing director of scil filed a claim disputing the effective date of the termination of his management service agreement and the validity of the Company´s waiver of his two-year post-contractual non-compete obligation. The Company intends to defend itself against the claim. Whether or not this will be successful depends on complex facts and circumstances. The Company is, based on the advice

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

of its legal counsel, confident that it will be successful in evidencing the effective date of the termination of the management service agreement and as such, no accrual has been recorded for this ongoing litigation. Additionally, we are indemnified by the scil acquisition agreement for this claim.

On October 10, 2018, we reached an agreement in principle to settle the complaint that was filed against the Company by Shaun Fauley on March 12, 2015 in the U.S. District Court Northern District of Illinois (the "Court") alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action (the "Fauley Complaint"). The settlement, which received the Court's approval on February 28, 2019 and was not subsequently appealed by a class member, required us to make available a total of $6.8 million to pay class members, as well as to pay attorneys' fees and expenses to legal counsel to the class. The Company recorded the loss provision in the third quarter of 2018 in connection with the settlement agreement and does not have insurance coverage for the Fauley Complaint. The payment in respect of the settlement was made in full on April 3, 2019, and all activity related to the Fauley Complaint has ceased.

As of September 30, 2020, the Company was not a party to any other legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect on its business, financial condition, or operating results.

Off-Balance Sheet Commitments

We have no off-balance sheet arrangements or variable interest entities.

Purchase Obligations

The Company has contractual obligations with suppliers for unconditional annual minimum inventory purchases in the amounts of $27.8 million as of September 30, 2020.

15.    INTEREST AND OTHER EXPENSE (INCOME), NET

Interest and other expense (income), net, consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income	$	(123)	$	(141)	$	(476)	$	(365)
Interest expense	2,339		494		7,018		718
Other expense (income), net	(205)		574		(189)		579
Total interest and other expense, net	$	2,011	$	927	$	6,353	$	932

Cash paid for interest for the three months ended September 30, 2020 and 2019 was $1.6 million and $224 thousand, respectively. Cash paid for interest for the nine months ended September 30, 2020 and 2019 was $3.2 million and $351 thousand, respectively.

16.    CONVERTIBLE NOTES AND CREDIT FACILITY

Convertible Notes

On September 17, 2019, the Company issued $86.25 million aggregate principal amount of 3.750% Convertible Senior Notes due 2026 (the "Notes"), which included the exercise in full of

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

an $11.25 million purchase option, to certain financial institutions as the initial purchasers of the Notes (the "Initial Purchasers"). The Company pays interest on the Notes semiannually in arrears at a rate of 3.750% per annum on March 15 and September 15 of each year. The Notes are senior unsecured obligations of the Company. The Notes were issued pursuant to an Indenture, dated September 17, 2019 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee.

The net proceeds from the sale of the Notes were approximately $83.7 million after deducting the initial purchasers' discounts and the offering expenses payable by the Company. The Company used approximately $12.8 million of the net proceeds from the Notes to repay all outstanding indebtedness on its existing Credit Facility, and an additional $2.0 million to fully fund a cash collateralized letter of credit facility as required under the amendment to the Credit Agreement entered into in September 2019. The Company subsequently terminated the Credit Facility with JPMorgan Chase Bank, N.A. on December 31, 2019. The Company expects to use the remainder of the net proceeds from the sale of the Notes to fund its intended expansion efforts, including through acquisitions of complementary businesses or technologies or other strategic transactions, and for working capital and other general corporate purposes.

Refer to Note 16, Convertible Notes and Credit Facility, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's 2019 Form 10-K for further information on the Notes.

During the three and nine months ended September 30, 2020, the conditions allowing holders of the Notes to convert have not been met. The Notes were therefore not convertible during the three and nine months ended September 30, 2020 and the liability component was classified as long-term debt on the Company's Condensed Consolidated Balance Sheet as of September 30, 2020.

The following table summarizes the net carrying amount of the liability component of the Notes (in thousands):

	September 30, 2020		December 31, 2019
Carrying amount of equity component	$	39,508	$	39,508
Principal amount of the Notes	86,250		86,250
Unamortized debt discount	(36,329)		(40,902)
Net carrying amount	$	49,921	$	45,348

Interest expense related to the Notes for the three and nine months ended September 30, 2020 was $2.3 million and $7.0 million, respectively, which is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest expense related to contractual coupon interest	$	809	$	117	$	2,426	$	117
Interest expense related to amortization of the debt discount	1,524		220		$	4,573	220
	$	2,333	$	337	$	6,999	$	337

As of September 30, 2020, the remaining period over which the unamortized discount will be amortized is 71.5 months.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The estimated fair value of the Notes was $117.7 million and $116.0 million as of September 30, 2020 and December 31, 2019, respectively, determined through consideration of quoted market prices in less active markets. The fair value measurement is classified as Level 2 in the fair value hierarchy, which is defined in ASC 820 as inputs other than quoted prices in active markets that are either directly or indirectly observable. Based on our closing stock price of $98.79 on September 30, 2020, the if-converted value exceeded the aggregate principal amount of the Notes by $12.1 million.

17.    SEGMENT REPORTING

On April 1, 2020, Heska completed the acquisition of scil. Following this acquisition, we restructured our operating segments based on how the Chief Operating Decision Maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The CODM changed how he assesses performance and allocates resources based on geographic regions in order to better align with the global operations of the Company. Based on this change, the Company determined it has two reportable segments and revised prior comparative periods to conform to the current period segment presentation. The Company’s two segments are North America and International.

The North America segment is comprised of our operations in the United States, Canada and Mexico and the International segment is comprised of geographies outside of North America, which are our operations primarily in Australia, France, Germany, Italy, Malaysia, Spain and Switzerland. Certain expenses incurred at the Company’s headquarters located in the North America segment are allocated to each segment in a manner consistent with where the benefits from the expenses are derived. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation. The Company's sales are determined by the country of origin where the sale occurred. For a description of Heska's previous operating segments, refer to Note 17 to the consolidated financial statements of Heska's 2019 Annual Report on Form 10-K.

Our CODM continues to evaluate segment performance and allocate resources based on Revenue, Cost of Revenue, Gross Profit, Gross Margin and Operating Income. The CODM does not evaluate operating segments using asset information; however, we have included total asset information by segment below as there was a material change in total assets by segment as of September 30, 2020 due to the acquisition of scil.

Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):

Three Months Ended September 30, 2020	North America			International			Total
Total revenue	$	34,450		$	22,186		$	56,636
Cost of revenue	17,820			15,412			33,232
Gross profit	16,630			6,774			23,404
Gross margin	48		%	31		%	41		%
Operating income (loss)	(10)			213			203

Three Months Ended September 30, 2019	North America			International			Total
Total revenue	$	29,605		$	1,632		$	31,237
Cost of revenue	16,590			983			17,573
Gross profit	13,015			649			13,664
Gross margin	44		%	40		%	44		%
Operating income (loss)	362			(169)			193

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Nine Months Ended September 30, 2020	North America			International			Total
Total revenue	$	91,081		$	41,920		$	133,001
Cost of revenue	49,187			29,098			78,285
Gross profit	41,894			12,822			54,716
Gross margin	46		%	31		%	41		%
Operating loss	(7,172)			(1,699)			(8,871)

Nine Months Ended September 30, 2019	North America			International			Total
Total revenue	$	84,492		$	4,402		88,894
Cost of revenue	47,224			3,051			50,275
Gross profit	37,268			1,351			38,619
Gross margin	44		%	31		%	43	%
Operating income (loss)	203			(651)			(448)

Asset information by reportable segment as of September 30, 2020 is as follows (in thousands):

As of September 30, 2020	North America		International		Total
Total assets	$	228,466	$	155,409	$	383,875

Asset information by reportable segment as of December 31, 2019 is as follows (in thousands):

As of December 31, 2019	North America		International		Total
Total assets	$	219,402	$	25,022	$	244,424

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.    SUBSEQUENT EVENTS

In October 2020 the Company acquired the remaining 30% minority interest in Optomed for a purchase price of $450 thousand. The Company had previously acquired 70% of the equity of Optomed in February 2019. The purchase allows the Company to assume full control of the business operations.

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related Notes included in Part I Item 1 of this Form 10-Q.

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, that involve risks and uncertainties, and can generally be identified by our use of the words "scheduled," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions. Such statements, which include statements concerning future revenue sources and concentration, international market expansion, gross profit margins, selling and marketing expenses, remaining minimum performance obligations, research and development expenses, general and administrative expenses, capital resources, financings or borrowings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed under the caption "Risk Factors" contained in Part II, Item 1A, of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K that could cause actual results to differ materially from those projected. The Risk Factors and others described in the Company’s periodic and current reports filed with the SEC from time to time are not necessarily all of the important factors that could cause the Company’s actual results to differ materially from those projected. The forward-looking statements set forth in this Form 10-Q are as of the close of business on November 4, 2020 and we undertake no duty and do not intend to update this information, except as required by applicable laws. If we updated one or more forward looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. See “Statement Regarding Forward Looking Statements.”

Overview

We sell advanced veterinary diagnostic and specialty products. Our offerings include Point of Care laboratory instruments and consumables, Point of Care digital imaging diagnostic products; vaccines; local and cloud-based data services; allergy testing and immunotherapy; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on supporting veterinarians in the canine and feline healthcare space.

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Point of Care laboratory instruments and other sales include outright instrument sales, revenue recognized from sales-type lease treatment, and other revenue sources, such as charges for repairs. Revenue from Point of Care laboratory consumables primarily involves placing an instrument under contract in the field and generating future revenue from testing consumables, such as cartridges and reagents, as that instrument is used. Instruments placed under subscription agreements are considered operating or sales-type leases, depending on the duration and other factors of the underlying agreement. A loss of, or disruption in, the supply of consumables we are selling to an installed base of instruments could substantially harm our business. All of our Point of Care laboratory and other non-imaging instruments and consumables are supplied by third parties, who typically own the product rights and supply the product to us under marketing and/or distribution agreements. In many cases, we have collaborated with a third party to adapt a human instrument for veterinary use. Major products in this area include our instruments for chemistry, hematology, blood gas and immunodiagnostic testing and their affiliated operating consumable.

Digital radiography is the largest product offering in Point of Care imaging, which also includes computed radiography and ultrasound instruments. Digital radiography solutions typically consist of a combination of hardware and software placed with a customer, often combined with an ongoing service and support contract. Our experience has been that most of the revenue is generated at the time of sale in this area, in contrast to the Point of Care diagnostic laboratory placements discussed above where ongoing consumable revenue is often a larger component of economic value as a given instrument is used.

Pharmaceuticals, Vaccines and Diagnostic ("PVD") revenue, includes single use diagnostic and other tests, pharmaceuticals and biologicals as well as research and development, licensing and royalty revenue. Since items in this area are often single use by their nature, our typical aim is to build customer satisfaction and loyalty for each product, generate repeat annual sales from existing customers and expand our customer base in the future. Products in this area are both supplied by third parties and provided by us. Major products and services in this area include heartworm diagnostic tests and preventives, and allergy test kits, allergy immunotherapy and testing.

Other Vaccines and Pharmaceuticals ("OVP") revenue is generated in our USDA, FDA and DEA licensed production facility in Des Moines, Iowa. We view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future. We have increased integration of this facility with our operations elsewhere. For example, virtually all of our U.S. inventory, excluding our imaging products, is now stored at this facility and related fulfillment logistics are managed there. Our OVP revenue includes vaccines and pharmaceuticals produced for third parties. OVP is attributable only to the North America segment.

All of our products are ultimately sold primarily to or through veterinarians. In many cases, veterinarians will mark up their costs to their customers. The acceptance of our products by veterinarians is critical to our success. These products are sold directly to end users by us as well as through distribution relationships, such as the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and sales to independent third-party distributors. Revenue from direct sales and distribution relationships represented 68.3% and 31.7%, respectively, of North America revenue for the three months ended September 30, 2020 and 67.3% and 32.7%, respectively, for the nine months ended September 30, 2020. Revenue from direct sales and distribution relationships represented 78.5% and 21.5%, respectively, of International revenue for the three months ended September 30, 2020 and 75.2% and 24.8%, respectively, for the nine months ended September 30, 2020.

Segment Change

During the second quarter of 2020, following the scil acquisition, the chief operating decision maker (“CODM”) changed how he assesses performance and allocates resources based on geographic regions. As a

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result, the Company determined it has two operating and reportable segments: North America and International. North America consists of the United States, Canada and Mexico. International consists of geographies outside of North America, primarily our operations in Australia, France, Germany, Italy, Malaysia, Spain and Switzerland. The Company's core strategic focus on point of care laboratory and imaging products are included in both segments. The North America segment also includes the contract manufacturing of vaccines and pharmaceutical products. The Company revised prior comparative periods to conform to the current period segment presentation. Refer to Note 17 - Segment Reporting for further information.

Impact of COVID-19 Pandemic and Current Economic Environment

During the quarter, we experienced modest impact on our business resulting from government restrictions on the movement of people, goods, and services in connection with the COVID-19 pandemic. Fortunately, those we serve, veterinarians and herd animal health experts, are deemed essential services in areas of government mandated restrictions. To service them safely and efficiently, Heska teams quickly adjusted to a targeted, remote workforce posture and put the care and health of people and our brand first. Heska has not laid off or furloughed employees but did introduce limited salary reductions in Europe, which were removed during the quarter. Because of social distancing measures, on-site installations of POC Lab and Imaging equipment will experience intermittent delays. While not significant to the overall results of the of the year so far, on-site installations of equipment have been impacted since March. We anticipate the impact to on-site installations and capital equipment expenditures to continue for at least the remainder of 2020.

Our financial position remains strong. On April 1, 2020, we closed our acquisition of scil; the transaction was fully financed by a preferred stock offering. We have sufficient liquidity to sustain our operations and do not anticipate a need to access additional capital outside of the various programs available to our overseas subsidiaries.

While we have experienced some intermittent delays in receiving supply, our supply chain has not been significantly impacted and we do not expect that to materially change over the remaining months of 2020. Our major research and development projects are continuing to progress substantially as planned but we have experienced sporadic delays in receiving validation samples and device components as well as inefficiencies in remote collaboration and field-testing. We anticipate these delays to result in total slippage of 90 to 120 days in our new products’ commercial roll-out schedules, consistent with our disclosure in our Form 10-Q for the period ending June 30, 2020.

We do not know how long COVID-19 related challenges will continue. The ultimate impact on our business will depend on many factors substantially beyond our control and difficult to predict. In the near-term and with asynchronous variation across geographies, we anticipate veterinary hospitals will temporarily: (1) realize lower average diagnostics use as a result of deferred and elective patient visits, and (2) delay capital equipment investments as a result of heightened conservatism and the effects of social distancing on in-clinic demonstrations and installations. Despite these headwinds, we believe we are well positioned because: (1) our customers and products are essential, (2) our main Point of Care laboratory business continues to show healthy consumables use and margin, (3) our subscriptions model metrics continue to show solid performance, (4) our vaccines and pharmaceuticals business continues to perform with minimal disruption, (5) our balance sheet is strong, and (6) our employees, logistics, supply chain, and operations continue to operate well in the current environment and they are fully prepared for both a phased return and an instant return to full capacity.

Results of Operations

Our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward.

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The following table sets forth, for the periods indicated, certain data derived from our unaudited Condensed Consolidated Statements of (Loss) Income (in thousands, except per share):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue, net	$	56,636		$	31,237		$	133,001		$	88,894
Gross profit	23,404			13,664			54,716			38,619
Operating expenses	23,201			13,471			63,587			39,067
Operating income (loss)	203			193			(8,871)			(448)
Interest and other expense, net	2,011			927			6,353			932
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,808)			(734)			(15,224)			(1,380)
Income tax expense (benefit)	3,413			(530)			1,693			(1,966)
Net (loss) income before equity in losses of unconsolidated affiliates	(5,221)			(204)			(16,917)			586
Equity in losses of unconsolidated affiliates	(83)			(147)			(300)			(455)
Net (loss) income after equity in losses of unconsolidated affiliates	(5,304)			(351)			(17,217)			131
Net loss attributable to redeemable non-controlling interest	(85)			(41)			(353)			(132)
Net (loss) income attributable to Heska Corporation	$	(5,219)		$	(310)		$	(16,864)		$	263
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.57)		$	(0.04)		$	(1.99)		$	0.03
Non-GAAP net income per diluted share(1)(2)	$	0.08		$	0.14		$	0.14		$	0.36
Adjusted EBITDA(1)	$	8,655		$	1,995		$	13,721		$	6,034
Net (loss) income margin(1)	(9.2)		%	(0.7)		%	(12.7)		%	0.7		%
Adjusted EBITDA margin(1)	15.3		%	6.4		%	10.3		%	6.8		%

(1) See “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net income and Non-GAAP net income (loss) per diluted share to diluted (loss) earnings per share attributable to Heska Corporation, on the closest comparable GAAP measures, for each of the periods presented.

(2) Shares used in the diluted per share calculation for non-GAAP net income per diluted share are (in thousands): 9,447 for the three months ended September 30, 2020 compared to 7,969 for the three months ended September 30, 2019 and 8,486 for the nine months ended September 30, 2020 compared to 7,960 for the nine months ended September 30, 2019.

Revenue

Total revenue increased 81.3% to $56.6 million for the three months ended September 30, 2020, compared to $31.2 million for the three months ended September 30, 2019. Total revenue increased 49.6% to $133.0 million in the nine months ended September 30, 2020, compared to $88.9 million in the nine months ended September 30, 2019. The significant increases in revenue are driven mainly by the acquisitions of CVM and scil, which represented $23.3 million and $42.9 million in the three and nine months ended September 30, 2020, respectively, that was not included in the prior year periods.

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Gross Profit

Gross profit increased 71.3% to $23.4 million in the three months ended September 30, 2020, compared to $13.7 million in the three months ended September 30, 2019. Gross margin decreased to 41.3% in the three months ended September 30, 2020, compared to 43.7% in the three months ended September 30, 2019. Gross profit increased 41.7% to $54.7 million in the nine months ended September 30, 2020, compared to $38.6 million in the nine months ended September 30, 2019. Gross margin decreased to 41.1% in the nine months ended September 30, 2020, compared to 43.4% in the nine months ended September 30, 2019. The increase in gross profit for both periods was due mainly to recent acquisitions. The decrease in gross margin percentage for both periods was due to lower margin in our newly acquired businesses.

Operating Expenses

Selling and marketing expenses increased 60.2% to $10.8 million in the three months ended September 30, 2020, compared to $6.7 million in the three months ended September 30, 2019. Selling and marketing expenses increased 35.5% to 27.7 million in the nine months ended September 30, 2020, compared to $20.5 million in the nine months ended September 30, 2019. The increases in both periods are a direct result of international expansion related to recent acquisitions and are in line with management expectations.

Research and development expenses decreased 13.2% to $2.2 million in the three months ended September 30, 2020, compared to $2.5 million in the three months ended September 30, 2019. Research and development expenses decreased 1.9% to $6.0 million in the nine months ended September 30, 2020, compared to $6.1 million in the nine months ended September 30, 2019. The decrease in both periods is related to timing of spending on product development for urine and fecal diagnostic analyzer and enhanced immunodiagnostic offerings in the current year. As we invest in future growth of the Company, management anticipates increased research and development costs throughout 2020, which is consistent with strategic initiatives.

General and administrative expenses increased 142.4% to $10.3 million in the three months ended September 30, 2020, compared to $4.2 million in the three months ended September 30, 2019. General and administrative expenses increased 139.3% to 29.9 million in the nine months ended September 30, 2020, compared to $12.5 million in the nine months ended September 30, 2019. The increase in both periods is driven by one-time costs related to the acquisition of scil, which were $0.8 million for the third quarter and $7.4 million for the year to date period. In addition, increased stock-based compensation expenses of $2.9 million in the third quarter and $3.3 million in the year to date period, and additional expenses related to the impact of international acquisitions compared to the prior year.

Interest and Other Expense (Income), net

Interest and other expense (income), net, was $2.0 million in the three months ended September 30, 2020, compared to $927 thousand in the three months ended September 30, 2019. Interest and other expense (income), net, was $6.4 million in the nine months ended September 30, 2020, compared to $932 thousand in the nine months ended September 30, 2019. The increase in interest and other expense was primarily driven by interest expense as a result of the Notes.

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Income Tax (Benefit) Expense

For the three months ended September 30, 2020, we had a total income tax expense of $3.4 million, including $3.0 million of domestic deferred income tax expense and $370 thousand current income tax expense. In the three months ended September 30, 2019, we had a total income tax benefit of $0.5 million, including $0.6 million of domestic deferred income tax benefit and $40 thousand of current income tax expense. The increase in tax expense is due to an increased valuation allowance based on a realizability assessment of deferred tax assets relating to expiring net operating loss carry-forwards. The Company recognized $0.1 million in excess tax benefits related to employee share-based compensation in the three months ended September 30, 2020, compared to $0.1 million recognized in the three months ended September 30, 2019. The Company recognized $0.5 million in excess tax benefits related to employee share-based compensation in the nine months ended September 30, 2020, compared to $1.5 million recognized in the nine months ended September 30, 2019.

Net (Loss) Income Attributable to Heska Corporation

Net loss attributable to Heska was $5.2 million in the three months ended September 30, 2020, compared to net loss attributable to Heska of $0.3 million in the three months ended September 30, 2019. Net loss attributable to Heska was $16.9 million in the nine months ended September 30, 2020, compared to net income attributable to Heska of $0.3 million in the nine months ended September 30, 2019. The difference between this line item and "Net (loss) income after equity in losses of unconsolidated affiliates" is the net income or loss attributable to our minority interest in our French subsidiary, which we purchased in February 2019. Net income is lower in both comparative periods due to increases in operating expenses as discussed above, tax interest and amortization charges relating to the Notes, and increased deferred income tax expense.

Adjusted EBITDA

Adjusted EBITDA in the three months ended September 30, 2020 was $8.7 million (15.3% adjusted EBITDA margin), compared to $2.0 million (6.4% adjusted EBITDA margin) in the three months ended September 30, 2019. Adjusted EBITDA was $13.7 million (10.3% adjusted EBITDA margin) in the nine months ended September 30, 2020, compared to $6.0 million (6.8% adjusted EBITDA margin) in the nine months ended September 30, 2019. The increase is driven by increased revenue and gross profit as discussed above. The increases in operating expenses are excluded from adjusted EBITDA. See “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA to net income, the closest comparable GAAP measure, for each of the periods presented.

Earnings Per Share

Loss per share attributable to Heska was $0.57 per diluted share in the three months ended September 30, 2020 compared to loss of $0.04 per diluted share in the three months ended September 30, 2019. In the nine months ended September 30, 2020 we had a loss of $1.99 per diluted share compared to income of $0.03 per diluted share in the nine months ended September 30, 2019. The decline in both periods is primarily due to increases in operating expenses as discussed above, interest and amortization charges relating to the Notes, and increased deferred income tax expense.

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Non-GAAP Earnings Per Share

Non-GAAP EPS was income of $0.08 per diluted share in the three months ended September 30, 2020 compared to income of $0.14 per diluted share in the three months ended September 30, 2019. In the nine months ended September 30, 2020 non-GAAP EPS was income of $0.14 per diluted share compared to income of $0.36 per diluted share in the nine months ended September 30, 2019. The decline in both periods is primarily due to cash interest related to the Notes and increased deferred income taxes. See “Non-GAAP Financial Measures" for a reconciliation of non-GAAP EPS to net (loss) income attributable to Heska per diluted share, the closest comparable U.S. GAAP measure, in each of the periods presented.

Non-GAAP Financial Measures

In addition to financial measures presented on the basis of accounting principles generally accepted in the U.S. (“U.S. GAAP”), we also present EBITDA, adjusted EBITDA, adjusted EBITDA margin, and non-GAAP net income (loss) per diluted share, which are non-GAAP measures.

These measures should be viewed as a supplement to, not substitute for, our results of operations presented under U.S. GAAP. The non-GAAP financial measures presented may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner. Management uses EBITDA, adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income (loss) per diluted share as key profitability measures, which are included in monthly or quarterly analyses of our operating results to our senior management team, our annual budget and related goal setting and other performance measurements. We believe these non-GAAP measures enhance our investors' understanding of our business performance and that not adjusting for the items included in the reconciliations below would hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses.

The following tables reconcile our most directly comparable as-reported financial measures calculated in accordance with GAAP to our non-GAAP financial measures (in thousands, except percentages and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net (loss) income(1)	$	(5,221)		$	(204)		$	(16,917)		$	586
Income tax expense (benefit)	3,413			(530)			1,693			(1,966)
Interest expense	2,216			353			6,542			353
Depreciation and amortization	3,337			1,237			8,041			3,759
EBITDA	$	3,745		$	856		$	(641)		$	2,732
Acquisition-related and other one-time costs(2)	776			—			7,379			—
Stock-based compensation	4,132			1,245			6,930			3,625
Equity in losses of unconsolidated affiliates	(83)			(147)			(300)			(455)
Net loss attributable to non-controlling interest	85			41			353			132
Adjusted EBITDA	$	8,655		$	1,995		$	13,721		$	6,034
Net (loss) income margin(3)	(9.2)		%	(0.7)		%	(12.7)		%	0.7		%
Adjusted EBITDA margin(3)	15.3		%	6.4		%	10.3		%	6.8		%

(1) Net (loss) income used for reconciliation represents the "Net (loss) income before equity in losses of unconsolidated affiliates."

(2) To exclude the effect of one-time charges of $0.8 million and $7.4 million for the three and nine months ending September 30, 2020 incurred primarily as part of the acquisition of scil.

(3) Net (loss) income margin and adjusted EBITDA margin are calculated as the ratio of net (loss) income and adjusted EBITDA to revenue.

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
GAAP net (loss) income attributable to Heska per diluted share	$	(0.57)	$	(0.04)	$	(1.99)	$	0.03
Acquisition-related and other one-time costs(1)	0.08		—		0.87		—
Amortization of acquired intangibles(2)	0.16		0.04		0.42		0.12
Purchase accounting adjustments related to inventory and fixed asset step-up(3)	0.03		—		0.07		—
Amortization of debt discount and issuance costs	0.16		0.03		0.54		0.04
Stock-based compensation	0.44		0.16		0.82		0.46
Gain (loss) on equity investee transactions	0.01		0.02		0.04		0.06
Estimated income tax effect of above non-GAAP adjustments(4)	(0.23)		(0.07)		(0.63)		(0.35)
Non-GAAP net income (loss) per diluted share	$	0.08	$	0.14	$	0.14	$	0.36
Shares used in diluted per share calculations	9,447		7,969		8,486		7,960

1 To exclude the effect of one-time charges of $0.8 million and $7.4 million in the three and nine months ending September 30, 2020 incurred primarily as part of the acquisition of scil.

2 To exclude the effect of amortization of acquired intangibles of $1.5 million and $3.6 million in the three and nine months ended September 30, 2020, compared to $0.3 million and $1.0 million in the three and nine months ended September 30, 2019. These costs were incurred as part of the purchase accounting adjustments for the acquisitions of scil, Optomed and CVM.

3 To exclude the effect of purchase accounting adjustments for inventory step up amortization of $0.2 million and depreciation related to the step-up of fixed assets of $0.6 million for the three and nine months ended September 30, 2020.

4 Represents income tax expense utilizing an estimated effective tax rate that adjusts for non-GAAP measures including: acquisition-related and other one-time costs (excluding items which are not deductible for tax of $32 thousand benefit and $4.0 million cost for the three and nine months ended September 30, 2020, respectively), amortization of acquired intangibles, purchase accounting adjustments, amortization of debt discount and issuance costs, and stock-based compensation. This incorporates the discrete tax benefits related to stock-based compensation of $0.1 million and $0.5 million for the three and nine months ended September 30, 2020, respectively, compared to $0.1 million and $1.5 million for the three and nine months ended September 30, 2019, respectively. Adjusted effective tax rates are approximately 25% for all periods presented.

Impact of Inflation

In recent years, inflation has not had a significant impact on our operations.

Analysis by Segment

The North America segment includes sales and costs from the United States, Canada and Mexico. The International segment includes sales and costs from Australia, France, Germany, Italy, Malaysia, Spain and Switzerland.

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The North America segment represented approximately 60.8% and 68.5% of our revenue for the three and nine months ended September 30, 2020, respectively, and the International segment represented approximately 39.2% and 31.5% of our revenue for the three and nine months ended September 30, 2020, respectively.

The following sections and tables set forth, for the periods indicated, certain data derived from our unaudited Condensed Consolidated Statements of (Loss) Income (in thousands).

North America Segment

	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Dollar Change		% Change		2020			2019			Dollar Change		% Change
Point of Care laboratory:	$	19,839		$	17,456		$	2,383	13.7	%	$	52,640		$	49,495		$	3,145	6.4	%
Instruments & Other	3,768			3,503			265		7.6	%	9,346			10,043			(697)		(6.9)	%
Consumables	16,071			13,953			2,118		15.2	%	43,294			39,452			3,842		9.7	%
Point of Care imaging	5,268			4,550			718		15.8	%	12,912			13,781			(869)		(6.3)	%
PVD	5,437			2,702			2,735		101.2	%	14,821			8,093			6,728		83.1	%
OVP	3,906			4,897			(991)		(20.2)	%	10,708			13,123			(2,415)		(18.4)	%
Total North America revenue	$	34,450		$	29,605		4,845		16.4	%	$	91,081		$	84,492		$	6,589	7.8	%
North America Gross Profit	16,630			13,015			3,615		27.8	%	41,894			37,268			$	4,626	12.4	%
North America Gross Margin	48.3		%	44.0		%					46.0		%	44.1		%
North America Operating Income (Loss)	(10)			362			$	(372)	(102.8)	%	(7,172)			203			$	(7,375)	(3,633.0)	%
North America Operating Margin	—		%	1.2		%					(7.9)		%	0.2		%

North America segment revenue increased 16.4% to $34.5 million for the three months ended September 30, 2020, compared to $29.6 million for the three months ended September 30, 2019. The $4.8 million increase was driven by a $2.4 million increase in PVD related to the contract manufactured heartworm preventive, Tri-Heart®, which had reduced channel demand in 2019, and a 15.2% increase in POC Lab Consumables. North America segment revenue increased 7.8% to $91.1 million for the nine months ended September 30, 2020, compared to $84.5 million for the nine months ended September 30, 2019. The $6.6 million increase was driven by a $6.5 million in Tri-Heart sales and 9.7% increase in POC Lab Consumables. These increases were partially offset by a 18.4% decrease in OVP related to reduced customer requirements during the period, a 6.3% decrease in from Point of Care Imaging, and a 6.9% decrease in capital lease placements and outright sales of Point of Care Lab Instruments, which were largely expected as a result of the government restrictions in place relating to COVID-19.

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Gross profit for the North America segment was $16.6 million compared to $13.0 million for the three months ended September 30, 2020 and 2019, respectively. Gross profit was $41.9 million compared to $37.3 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in gross profit for both periods is primarily driven by increased revenue in the current year periods, specifically related to PVD and POC Lab Consumables. Gross margin was 48.3% for the three months ended September 30, 2020, compared to 44.0% in the three months ended September 30, 2019. Gross margin was 46.0% for the nine months ended September 30, 2020, compared to 44.1% in the nine months ended September 30, 2019. The increase is due to increased revenue and margins for consumables, Tri-Heart and OVP, which had reduced production in the nine months ended September 30, 2019.

North America operating loss increased $0.4 million and $7.4 million for the three and nine months ended September 30, 2020 compared to the prior year periods. The increase is driven by one-time transaction related costs for the acquisition of scil and increased stock-based compensation expenses in the current year periods.

International Segment

	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
	2020			2019			Dollar Change		% Change		2020			2019			Dollar Change		% Change
Point of Care laboratory:	$	14,307		$	71		$	14,236	20,050.7	%	$	26,778		$	111		$	26,667	24,024.3	%
Instruments & Other	2,920			1			2,919		291,900.0	%	5,360			17			5,343		31,429.4	%
Consumables	11,387			70			11,317		16,167.1	%	21,418			94			21,324		22,685.1	%
Point of Care imaging	7,029			785			6,244		795.4	%	12,791			2,194			10,597		483.0	%
PVD	850			776			74		9.5	%	2,351			2,097			254		12.1	%
Total International revenue	$	22,186		$	1,632		20,554		1,259.4	%	$	41,920		$	4,402		37,518		852.3	%
International Gross Profit	6,774			649			6,125		943.8	%	12,822			1,351			11,471		849.1	%
International Gross Margin	30.5		%	39.8		%					30.6		%	30.7		%
International Operating Income (Loss)	$	213		$	(169)		382		226.0	%	$	(1,699)		$	(651)		(1,048)		(161.0)	%
International Operating Margin	1.0		%	(10.4)		%					(4.1)		%	(14.8)		%

International segment revenue was $22.2 million compared to $1.6 million for the three months ended September 30, 2020 and 2019, respectively. International revenue was $41.9 million compared to $4.4 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in both periods is due to the acquisitions of CVM and scil, which contributed approximately $20.0 million of revenue in the three months ended September 30, 2020 and $36.9 million of revenue in the nine months ended September 30, 2020, that were not included in the comparable periods.

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Gross profit for the International segment was $6.8 million compared to $0.6 million for the three months ended September 30, 2020 and 2019, respectively. Gross profit was $12.8 million compared to $1.4 million for the nine months ended September 30, 2020 and 2019, respectively. Gross margin for the International segment was 30.5% and 30.6% for the three and nine months ended September 30, 2020, respectively, compared to 39.8% and 30.7% for the three and nine months ended September 30, 2019, respectively. The increase in gross profit for both periods is primarily driven by increased revenue from acquisitions. The decrease in gross margin is driven by the increased revenue from acquisitions at lower margins.

International operating income increased $0.4 million and operating loss increased $1.0 million for the three and nine months ended September 30, 2020, respectively, compared to the prior year periods. The increase in operating loss for the three months ended September 30, 2020 is driven by increased International revenue and gross profit. The increase in operating loss for the nine months ended September 30, 2020 is driven by one-time transaction related costs in the current year period; partially offset by increased International revenue and gross profit discussed above.

Liquidity, Capital Resources and Financial Condition

We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to access other forms of capital as well as our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control, including but not limited to effects of the COVID-19 pandemic. Our primary source of liquidity is our available cash of $84.5 million, which includes net proceeds from the issuance of the Notes. Additionally, we financed the acquisition of scil through a private placement of convertible preferred equity for which we raised $122 million, while we transferred approximately $111 million in purchase price, netting a remaining $11 million of liquidity. Refer to Note 12. Capital Stock.

For the nine months ended September 30, 2020, we had net loss after equity in losses from unconsolidated affiliates of $17.2 million and net cash used by operations of $8.1 million. At September 30, 2020, we had $84.5 million of cash and cash equivalents and $132.7 million of working capital.

A summary of our cash from operating, investing and financing activities is as follows (in thousands):

	Nine Months Ended September 30,				Change
	2020		2019		Dollar Change		% Change
Net cash used in operating activities	$	(8,101)	$	(3,276)	$	(4,825)	147.3	%
Net cash used in investing activities	(120,043)		(1,344)		(118,699)		8,831.8	%
Net cash provided by financing activities	123,499		73,767		49,732		67.4	%
Foreign exchange effect on cash and cash equivalents	123		(31)		154		(496.8)	%
Increase (decrease) in cash and cash equivalents	(4,522)		69,116		(73,638)		(106.5)	%
Cash and cash equivalents, beginning of the period	89,030		13,389		75,641		564.9	%
Cash and cash equivalents, end of the period	$	84,508	$	82,505	$	2,003	2.4	%

Net cash used in operating activities was approximately $8.1 million for the nine months ended September 30, 2020, compared to net cash used in operating activities of $3.3 million for the nine months ended September 30, 2019, a decrease in cash from operating activities of approximately $4.8 million. The decrease in cash from operating activities is primarily due to the $17.3 million decrease in net income after equity in losses of

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unconsolidated affiliates for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This decrease is partially offset by non-cash transactions impacting cash used by operating activities, including a $4.3 million increase related to amortization of the debt discount, a $4.3 million increase in depreciation and amortization driven by the acquisition of scil, and a $3.3 million increase in stock-based compensation expense.

Net cash used in investing activities was $120.0 million for the nine months ended September 30, 2020, compared to net cash used in investing activities of $1.3 million for the nine months ended September 30, 2019, an increase of approximately $118.7 million. The increase in cash used for investing activities was driven by $105.2 million investment for the scil acquisition, net of cash acquired, and a $14.4 million payment of consideration for the December 2019 acquisition of CVM.

Net cash provided by financing activities was $123.5 million for the nine months ended September 30, 2020, compared to net cash provided financing activities of $73.8 million for the nine months ended September 30, 2019, an increase of approximately $49.7 million. The change was driven primarily by a $122.0 million increase in proceeds from preferred stock, primarily used for financing the acquisition of scil.

We believe that our cash, cash equivalents and marketable securities balances, as well as the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures, including selling and marketing team expansion and product development initiatives, for at least the next 12 months. Our belief may prove to be incorrect, however, and we could utilize our available financial resources sooner than we currently expect. For example, we actively seek opportunities that are consistent with our strategic direction, which may require additional capital. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part II, Item 1A, "Risk Factors", of this Form 10-Q and in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019. We may be required to seek additional equity or debt financing in order to meet these future capital requirements, even in the absence of any acquisitions. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected.

Effect of currency translation on cash

Net effect of foreign currency translations on cash was a $123 thousand positive impact for the nine months ended September 30, 2020, compared to a $31 thousand negative impact for the nine months ended September 30, 2019, an increase of $154 thousand. These effects are related to changes in exchange rates between the U.S. Dollar and the Swiss Franc, Euro, Australian Dollar, Canadian Dollar, and Malaysian Ringgit which are the functional currencies of our subsidiaries.

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet arrangements or variable interest entities.

Purchase Obligations

Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and specify approximate timing of the transaction. As of September 30, 2020, the Company had purchase obligations for inventory of $27.8 million.

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Critical Accounting Policies and Estimates

Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and other than the recently adopted accounting pronouncements described in Note 1. Operations and Summary of Significant Accounting Policies in our Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q, have not changed significantly since such filing.

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about other market risk affecting us, see the section under the heading “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference herein. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

We evaluated our internal controls over financial reporting that have occurred since the last fiscal year in relation to recurring performance, realigned business segments, and changes to the control environment due to COVID-19. Based on the assessment, we determined that there has not been a change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting for fiscal year 2020.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

The disclosure regarding the Fauley Complaint included in Note 14 (Commitments and Contingencies) to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q is incorporated by reference in this item.

Item 1A.Risk Factors

For a discussion of our risk factors, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Annual Report"), which is incorporated herein by reference. As

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of the date of this Quarterly Report on Form 10-Q, except as described below, there have been no material changes to the risk factors described in our Annual Report.

The impact of the COVID-19 pandemic on consumer demand, our global supply chain and our financial and operational results.

With the recent acquisition of scil, our worldwide operations make us vulnerable to risks from a global public health crisis, such as the COVID-19 pandemic, which is adversely impacting consumer demand, our global supply chain, and financial and operational results. We expect further adverse impact to our financial results as the pandemic spreads through domestic and foreign markets and if local governmental authorities institute or extend “shelter at home” protective measures. While the pace and ability of governmental authorities to contain the COVID-19 pandemic remains uncertain, we expect this global public health crisis to have an adverse impact on our financial results, including revenues, earnings and cash flows through at least the remainder of 2020; specifically as a result of:

•Temporary closure or reduced hours of veterinary clinics where we sell our products and services, resulting in decreased visits and testing;

•Reduction in consumer discretionary spending on their pets’ health and wellbeing;

•Potential supply chain disruption caused by additional customs restrictions of cross border trade, and other factors related to COVID-19 pandemic;

•Governmental orders that create an array of restrictions on our customers, our employees and the pets they serve to limit the spread of the COVID-19 pandemic;

•Lower productivity due to reduced travel, work from home policies or shelter in place orders; and

•Overall slowdown in foreign and domestic economies resulting in stagnating wage growth, reduced discretionary spending and temporary or permanent staffing layoffs.

As a result of the COVID-19 pandemic, we have implemented strict work from home policies for all employees with the ability to work remotely at all of our locations. At our Des Moines, Iowa manufacturing facility, production schedules remain on track for order fulfillment but we have instituted staggered start times, designated building entry/exit protocols and closed common areas to maximize “social distancing” guidelines. Companywide, we enacted travel restrictions that have begun to disrupt the standard operation of our business. The restricted travel policies for our sales force has adversely affected our customers' ability or willingness to purchase our products and services, delayed customer capital spending and reduced our ability to provide on-site customer service.

While we are unable to predict the duration of the financial and operational impact due to the COVID-19 pandemic, we expect it to adversely affect our business through at least the remainder of 2020. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risk factors described in the Risk Factors disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information about our purchases of our outstanding Public Common Stock during the quarter ended September 30, 2020:

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Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs
July 2020	—	$	—	—	$	—
August 2020	—	$	—	—	$	—
September 2020	271	$	97.17	—	$	—
	271	$	97.17	—	$	—
(1) Shares of Public Common Stock we purchased between July 1, 2020 and September 30, 2020 were solely for the cancellation of shares of stock withheld for related tax obligations.

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Item 6.    Exhibits

Exhibit Number	Notes	Description of Document
2.1#++	(1)	Agreement regarding the sale and purchase of the sole share in scil animal care company GmbH among Registrant, Heska GmbH, Covetrus Animal Health Holdings Limited and Covetrus, Inc. dated January 14, 2020.
2.2#	(2)	Amendment Agreement dated April 1, 2020 regarding the agreement on the sale and purchase of the sole share in scil animal care company GmbH.
3.1	(3)	Restated Certificate of Incorporation of the Registrant.
3.2	(3)	Certificate of Amendment to Restated Certificate of Incorporation of Registrant.
3.3	(3)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.4	(4)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.5	(5)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.6	(6)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.7	(7)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.8	(8)	Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of Registrant.
3.9	(9)	Certificate of Designation of Preferences, Rights and Limitations of Series X Convertible Preferred Stock.
10.1#++		Amendment No. 7 to Supply and License Agreement between Registrant and Intervet Inc., d.b.a. Merck Animal Health, effective as of September 18, 2020.
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
104.0		Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101)

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Notes
*	Furnished and not filed herewith.
++	Certain confidential information contained in this exhibit has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
#	Certain personally identifiable information has been omitted from this exhibit pursuant to Item 601(a)(6) under Regulation S-K.
(1)	Filed with the Registrant's Form 10-K for the year ended December 31, 2019.
(2)	Filed with the Registrant's Form 8-K on April 1, 2020.
(3)	Filed with the Registrant's Form 10-K for the year ended December 31, 2012.
(4)	Filed with the Registrant's Form 10-K for the year ended December 31, 2016.
(5)	Filed with the Registrant's Form 10-Q for the quarter ended March 31, 2017.
(6)	Filed with the Registrant's Form 8-K on May 9, 2018.
(7)	Filed with the Registrant's Form 10-Q for the quarter ended June 30, 2019.
(8)	Filed with the Registrant’s Form 10-Q for the quarter ended March 31, 2020.
(9)	Filed with the Registrant’s Form 8-K on April 1, 2020.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 5, 2020.

HESKA CORPORATION

By: /s/ KEVIN S. WILSON  

Kevin S. Wilson

Chief Executive Officer and President

(Principal Executive Officer)

By: /s/ CATHERINE GRASSMAN

Catherine Grassman

Executive Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

Certain confidential information contained in this document, marked by brackets as [***], has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed. In addition, certain personally identifiable information contained in this document, marked by brackets as [***], has been omitted from this exhibit pursuant to Item 601(a)(6) under Regulation S-K.

AMENDMENT NO. 7 TO THE

SUPPLY AND LICENSE AGREEMENT BY AND BETWEEN

HESKA CORPORATION AND

INTERVET INC., d/b/a MERCK ANIMAL HEALTH

This AMENDMENT NO. 7, dated as of this 18th day of September 2020 ("Amendment No. 7"), to the Supply and License Agreement, dated as of August 1, 2003 (the "Agreement"), is made by and between INTERVET INC., d/b/a MERCK ANIMAL HEALTH ("MAH"), and HESKA CORPORATION ("Heska").

RECITALS:

WHEREAS, MAH and Heska entered the Agreement to, among other things, provide for the supply by Heska to MAH of certain veterinary products; and

WHEREAS, MAH and Heska have previously amended the Agreement to provide that the Territory (as defined in the Agreement) includes Canada; and

WHEREAS, MAH and Heska desire to further amend the Agreement to, among other things, (i) authorize MAH's Affiliate Intervet Canada Corp. ("MAH Canada") to order certain veterinary products from Heska, and (ii) provide specific terms relating to the supply of such veterinary products to MAH Canada.

NOW, THEREFORE, MAH and Heska hereby agree to amend the Agreement as follows:

1.Unless otherwise defined herein, each of the capitalized terms used in this Amendment shall have the meaning ascribed to it in the Agreement.

2.MAH Canada is hereby authorized to directly purchase Products from Heska under the Agreement, and to resale and distribute such Products within Canada.

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3.MAH Canada's purchases of Products from Heska are subject to the terms and conditions of the Agreement, except as such terms and conditions are specifically amended by the Canada Terms and Conditions of Sale set forth in Exhibit A to this Amendment No. 7 (the "Canada Terms and Conditions of Sale").

4.Sections 1.1 and 2.17 of the Agreement will be replaced in its entirety with the Merck / Heska PV Agreement shown in Exhibit B.

5.In the event of any conflict between the Agreement (as amended) and the Canada Terms and Conditions of Sale as it relates to the purchase, sale and distribution of Products by MAH Canada in Canada, the Canada Terms and Conditions of Sale shall prevail.

6.From and after the execution of this Amendment, all references in the Agreement to "this Agreement," "hereof," "herein," and similar words or phrases shall mean and refer to the Agreement as amended by this Amendment. This Amendment shall not be modified, supplemented, amended, or terminated in any manner whatsoever, except by a written instrument signed the party against which such modification, supplement, amendment, or termination is sought to be enforced.

7.Except as expressly modified by this Amendment, all other terms and conditions of the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, each of MAH and Heska has caused this Amendment to be executed by its respective duly authorized officer as of the date first above written. MAH Canada has also executed this Amendment No. 7 to confirm its acceptance and acknowledgment of the Canada Terms and Conditions of Sale, and its agreement to be bound by the terms of the Agreement, this Amendment No. 7, and the Canada Terms and Conditions of Sale, as each relates to the purchase, resale and distribution of the Products within Canada.

HESKA CORPORATION

By:     /s/ Christopher Sveen    

Name: Christopher Sveen    

Title:     President, Diamond Animal Health    

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INTERVET INC.

By:     [***]    

Name:     [***]    

Title:     [***]     

Acknowledged and Agreed: INTERVET CANADA CORP.

By:     [***]    

Name: [***]    

Title:     [***]    

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EXHIBIT A

CANADA TERMS AND CONDITIONS OF SALE

A.Any and all rights and obligations under or pursuant to the Agreement that relate specifically to the purchase, sale, resale and/or distribution of the Product in Canada shall be deemed to apply solely to MAH Canada and not MAH. MAH shall not be responsible, and Heska hereby acknowledges that it shall not have any rights or recourses against MAH, for any liabilities or obligations of any nature of MAH Canada under, pursuant or in relation to or in connection with these Canada Terms and Conditions of Sale.

B.THESE CANADA TERMS AND CONDITIONS OF SALE MAY BE TERMINATED PURSUANT TO THE TERMINATION PROVISIONS CONTAINED IN THE AGREEMENT; PROVIDED, HOWEVER, THAT ANY SUCH TERMINATION WILL BE INDEPENDENT OF THE AGREEMENT, WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.

C.Appendix A to the Agreement is hereby replaced for Canada only by Appendix A to this Exhibit A.

D.Appendix B to the Agreement will be replaced for Canada only by Appendix B to this Exhibit A.

E.For Canada only, the Parties agree that Section 2.9 of the Agreement shall not apply. With respect to Canada only, the Parties agree that the responsibility for regulatory approvals and maintenance shall be as set forth in Appendix C to this Exhibit A. Each of Heska and MAH Canada shall fulfill the obligations set forth opposite its respective name in Appendix C hereto at its respective cost in order for MAH Canada to obtain and maintain in its name regulatory approval allowing for the importation, sale and distribution of the Product in Canada and shall provide such other reasonable, non-financial assistance as may be requested by the other Party for such purpose.

F.MAH Canada and Heska shall be bound by the terms of a distinct Technical Quality Agreement.

G.For the avoidance of doubt, no fee or other amount shall be payable pursuant to Section 4.1 of the Agreement upon approval of the Product in Canada.

H.For sales of Products in Canada only, the following shall apply as new Section

4.5 of the Agreement:

"4.5    Withholding Taxes

Each Party shall be responsible for the payment of their own applicable taxes due or payable in respect of any payment contemplated by this Agreement. Any payments under this Agreement shall be paid in full without any deduction or withholding of taxes, except to the extent required by law. If any taxes are required to be deducted or withheld by any Party pursuant to legal requirements, such Party will (i) pay the taxes to the applicable

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taxing authority, (ii) send proof of such payment to the other Party, and (iii) use reasonable efforts to assist the other Party in its efforts to obtain a credit for such tax payment. Each Party agrees to use reasonable efforts to assist the other Party in claiming any legal exemptions from the respective obligation to deduct or withhold tax under double taxation treaties available under applicable double tax treaties or other applicable laws."

I.MAH Canada represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of Canada.

J.Any and all references to the FDA or any other authority in the Agreement shall, to the extent necessary for Canada, be deemed to be a reference to the equivalent authority in Canada and any and all references to any and all laws, regulations and rules of the United States of America in the Agreement shall, to the extent necessary, be deemed to be a reference to the Canadian equivalent thereof.

K.Nothing set forth in this Canadian Agreement shall, in any manner, be construed as altering the terms and conditions of the Agreement, other than as expressly set forth herein or as required by applicable laws of Canada and its provinces.

L.For the purpose of Section 9.7 of the Agreement and notwithstanding anything to the contrary in the Agreement, notices to MAH Canada should be addressed as follows, subject to change at any time by MAH Canada upon notice to the other Party:

To MAH Canada:

c/o Intervet Canada Corp. 16750 TransCanada Highway Kirkland, Quebec H9H 4M7

Attention:    [***]

E-mail:    [***]

Telecopier:    [***]

With a copy to:

Merck Canada Inc.

16750 TransCanada Highway Kirkland, Quebec H9H 4M7

Attention:    [***]

E-mail:    [***]

Telecopier :    [***]

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Appendix A

Price, Minimum Purchase Size and

Annual Minimum Purchase Requirement for Canada

1.Pricing. The initial Product transfer price for all orders placed by MAH Canada and delivered by Heska during a Calendar Year shall be as set forth below and based on MAH Canada's good faith forecast of projected purchases of Product for such Calendar Year provided to Heska pursuant to Section 2.2.

Product Transfer Price (USD):

Table 1:

Small Tablets	Price/Unit	[***]
Medium Tablets	Price/Unit	[***]
Large Tablets	Price/Unit	[***]

The pricing in Table 1 is associated with the corresponding Minimum Purchase Size found in Section 2, Subsections a, b and c. These prices apply only to Product ordered in the corresponding Minimum Purchase Size.

Table 2:

Small Tablets	Price/Unit	[***]
Medium Tablets	Price/Unit	[***]
Large Tablets	Price/Unit	[***]

The pricing in Table 2 is associated with the corresponding Minimum Purchase Size found in Section 3, Subsections a, b and c. These prices apply only to Product ordered in the corresponding Minimum Purchase Size, provided that two, and only two, tablet sizes are to be purchased at the same time for each corresponding purchase order as further detailed in Section 3.

Prices are per Product packet, each packet consisting of six (6) tablets. Pricing assumes the use of pre-printed foil (blister) packaging compliant with United States regulatory authorities. If product packet requires Canadian specific foil, MAH Canada will make a [***] payment prior to each purchase of the pre-printed foil.

Prices are for the packaging format currently in effect as of the effective date of this Amendment No. 7. Packaging format changes required by the Canadian regulatory authorities or the equivalent, shall be paid for by MAH Canada, as shall packaging formats not required by regulatory authorities but requested by MAH Canada. MAH Canada shall reimburse Heska for its documented costs related to such changes in packaging format.

2.Minimum Purchase Size. The following apply to purchases made under pricing in Table 1 above.

a.Small Tablets:    [***]

b.Medium Tablets:    [***]

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c.Large Tablets:    [***]

- 8 -

1.Minimum Purchase Size. The following apply to purchases made under pricing in Table 2 above, provided that two, and only two, tablet sizes are to be purchased at the same time for each corresponding purchase order. [***].

a.Small Tablets:    [***]

b.Medium Tablets:    [***]

c.Large Tablets:    [***]

2.Purchases will be included in the calculation of MAH's Annual Minimum Purchase

Requirements set forth in Section 3 of Amendment No. 5, Exhibit A-1.

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Appendix B

Product Specifications - Canada

The product will be manufactured and released in compliance with the registration dossier

approved by Health Canada's Veterinary Drugs Directorate.

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Appendix C

Registration and Marketing Authorization Maintenance Requirements for Canada

	Heska	MAH Canada
Purchase CRP and export to Heska		X
Import/export documentation for CRP	X	X
Analytical method development and comparative release testing of Tri-Heart Plus vs. CRP and associated cost, as detailed in Appendix C-1	X
Re-analysis of efficacy data based on arithmetic means and associated cost	X
Identify an alternative GMP-certified testing laboratory for release testing and execute the analytical method transfer and associated cost	X	X
Provide a copy of Heska's US registration dossier and related amendments for Tri- Heart Plus to MAH Canada and any additional document required to meet current CAN registration requirements	X
Preparation    of    Canadian    registration dossier	X	X
Authorization Holder		X
Canadian importer and distributor		X
Registration/Maintenance fees (ABNDS, subsequent regulatory amendment, Annual DIN renewal, Drug Establishment License annual renewal fees)		X
Annual Product Review	X	X

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EXHIBIT B

MERCK / HESKA PV AGREEMENT

Definitions

"Adverse Event" or "AE" shall mean any observation in animals, whether or not considered to be product-related, that is unfavorable and unintended and that occurs after any use of a veterinary medicinal product ("VMP") (off-label and on-label uses). Included are events related to a suspected lack of expected efficacy or noxious reactions in humans after being exposed to VMPs, violations of approved residue limits, potential environmental problems and transmission of any infectious agent via a VMP.

"Authorization Holder" shall mean the Party who holds the Marketing Authorization of a Product in the Territory.

"Medication Error" shall mean any unintended error in the prescribing, storing, dispensing, preparing or administration of a VMP. This also includes cases where a medication error almost occurred, but did not (e.g., an animal owner reached for the wrong product, but realized it before using it).

"Product Quality Complaint" or "PQC" shall mean any written, electronic or oral communication that alleges a potential product defect related to the identity, strength, quality, packaging, labeling or purity of a company product after it is released/distributed for use by a customer and is out of the company's control.

"Counterfeiting" is the unauthorized use of trademark, trade name, other identifying mark, imprint, or device, or any likeness thereof to adulterate, falsely purport, or represent that the product was manufactured or distributed by the identified manufacturer or distributor.

"Diversion" is the transfer or sale of products or materials outside of their intended distribution channels that result in a violation of a law or contract.

"Tampering" is a fraudulent and unauthorized alteration of a product's quality or intended representation.

"Product Complaint" shall mean Adverse Events, Medication Errors, Product Quality Complaints, Counterfeiting, Diversion and Tampering.

"Business Day" shall mean a day in which a local operating unit or sub-unit has regular business operations. Business Days would exclude weekends (unless the unit is normally open weekend days) and holidays in which the unit is closed.

"Marketing Authorization" shall mean the approval granted by the Governmental Authority to market a Product in the Territory.

"Personal Information" shall mean any information or set of information that identifies, or is used by, or on behalf of, a Party to identify an individual.

"Date First Valid" shall mean the date upon which the four minimum criteria for a valid Adverse Event (AE) are first met (identifiable reporter, patient, product, and event), and represents Day 0 for the reporting timeframe for AEs.

"Date First Received" shall mean the date when the complaint first came to the knowledge of anyone within the respective company and represents Day 0 for the reporting timeframe for Product Quality Complaints (PQCs).

Pharmacovigilance Clause

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a.Adverse Event and Medication Error Reporting

i.Merck Animal Health ("MERCK") shall notify HESKA of any Adverse Event or Medication Error relating to the Product in the United States and Canada and in accordance with Applicable Law. Notification timelines shall be dependent upon the country of occurrence.

•For Adverse Events and Medication Errors originating in the United States, such notice shall be forwarded to HESKA by Merck Animal Health USA ("MERCK USA") via email using the PV-Works 1932 form within three (3) business days from the Date First Valid

•For Adverse Events and Medication Errors originating in Canada, such notice shall be forwarded to HESKA by Merck Animal Health Canada ("MERCK CANADA") via email using the PV-Works CVMP form within twelve (12) calendar days from the Date First Valid.

•Except for Canadian reports in which the reporter information may be withheld, all notifications shall include the name, address, and telephone number of the Person making the complaint or report of an Adverse Event or Medication Error, the Product involved, the nature of the Adverse Event or Medication Error, and such other information as the Authorization Holder may reasonably require.

ii.In the event that HESKA personnel are in direct receipt of any Adverse Event or Medication Error relating to the Product originating from anywhere in the world, notice shall be forwarded to MERCK by email to the designated point of contact ("DPOC") (USA contact: uscompanionpv@merck.com; Canadian contact: vet_PQC@merck.com), utilizing the reporting form, which is attached hereto as Exhibit E and made a part hereof. Notice shall be sent within one (1) Business Day or three (3) calendar days, whichever is shorter, from the Date First Valid.

iii.MERCK shall investigate any complaint or report of an Adverse Event or Medication Error. HESKA shall cooperate fully with and provide all reasonable and necessary information and assistance to MERCK in connection with such investigation, including, without limitation, submission of complete, accurate and timely responses to requests for additional information for each Product. MERCK shall notify HESKA of the results of, and any action taken with respect to, MERCK's investigation. HESKA shall:

•take all steps necessary to assist MERCK in meeting any reporting obligations and other obligations under Applicable Law relating to veterinary medicinal products and the applicable local regulations; and

•fulfill its reporting and other obligations under Applicable Law relating to veterinary medicinal products and the applicable local regulations.

iv.MERCK shall be ultimately responsible for the collection, storage and assessment of the Adverse Event and Medication Error data.

v.In the event HESKA receives from any Governmental Authority any communication relating to any Adverse Event or Medication Error HESKA shall, within one (1) Business Day from the date of receipt of such communication, notify MERCK of such communication by e-mail, to the [***], utilizing the reporting form, which is attached hereto as Exhibit E. The notice shall include, in addition to the communication from the Governmental Authority, a written summary of any conversations between HESKA or its Representatives and the Governmental Authority and any

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other information relating to such communication. HESKA shall notify MERCK of such communication.

vi.HESKA shall, within thirty calendar (30) days from the date of receipt of a request by MERCK, provide to MERCK a print-out or electronic file of each Adverse Event or Medication Error directly reported to or known by HESKA for the twelve (12) month period prior to the date of such request. HESKA shall, within ten (10) calendar days from the date of receipt of a request by MERCK, make available to MERCK or its designee, for inspection and copying (at MERCK's cost and expense), records of HESKA (including electronic files) relating to each Adverse Event and each Medication Error. The obligation of HESKA to disclose to MERCK records and information concerning any Adverse Event or Medication Error shall continue as long as MERCK continues to market any Product.

vii.MERCK and HESKA shall meet, in a timely fashion and from time to time as may be reasonably required, to implement the Adverse Event or Medication Error reporting and consultation procedures prescribed in this Clause.

viii.Within fifteen (15) calendar days of the end of each quarter, HESKA shall provide MERCK [***] with a line listing of all adverse event and medication error reports directly received by HESKA during the quarter. In turn, MERCK shall review all quarterly line listings forwarded by HESKA and notify HESKA of any discrepancies by no later than ten (10) calendar days from receipt thereof.

ix.Within fifteen (15) calendar days of the end of each quarter, MERCK CANADA shall provide HESKA [***] with a line listing of all adverse event and medication error reports directly received by MERCK CANADA during the quarter. In turn, HESKA shall review all quarterly line listings forwarded by MERCK CANADA and notify MERCK CANADA of any discrepancies by no later than ten (10) calendar days from receipt thereof.

x.On a weekly basis, MERCK USA shall provide HESKA [***] with a line listing of all adverse event and medication error reports directly received by MERCK USA during the prior week. In turn, HESKA shall review all weekly line listings forwarded by MERCK USA and notify MERCK USA of any discrepancies by no later than ten (10) calendar days from receipt thereof.

xi.The Authorization Holder (HESKA in USA; MERCK CANADA in Canada) shall have the ultimate obligation to make or file any report, or otherwise make any disclosure, with respect to any Adverse Event or Medication Error, to the relevant Governmental Authorities.

xii.MERCK shall have obtained all consents necessary to permit HESKA (and/or any of its and/or their contractors and/or agents) to lawfully handle and process any Personal Information relating to Adverse Events or Medication Errors, including personal data relating to individual persons making a complaint or reporting the occurrence of an Adverse Event or Medication Error.

b.Product Quality Complaint Reporting

i.HESKA shall develop and maintain written procedures governing the receipt and delivery of an investigation report for any Product Quality Complaint. HESKA shall:

•make such changes to such procedures as required by Applicable Law or as MERCK may reasonably request from time to time; and

•within thirty (30) days from the date of receipt of a request, or fourteen

- 14 -

(14) days from the date of receipt of an urgent request by MERCK, make available to MERCK or its designee, for inspection and copying, records of HESKA relating to each Product Quality Complaint.

ii.MERCK reserves the right to handle, process, investigate, and respond to each Product Quality Complaint. HESKA shall cooperate fully with and provide all reasonable and necessary information and assistance to, MERCK in connection with the handling, processing, investigation, and response to a Product Quality Complaint.

iii.For Product Quality Complaints originating in the United States, such notice shall be forwarded to HESKA by Merck Animal Health USA ("MERCK USA") via email using the PV-Works 1932 form within three (3) business days from the Date First Received.

iv.For Product Quality Complaints originating in Canada, such notice shall be forwarded to HESKA by Merck Animal Health Canada ("MERCK CANADA") via email using the PV-Works CVMP form within twelve (12) calendar days from the Date First Received.

v.In the event HESKA directly receives a Product Quality Complaint, HESKA shall, within one (1) Business Day or three (3) calendar days, whichever is shorter, from the date of receipt of such complaint, notify MERCK [***] of such complaint by e-mail.

vi.Within fifteen (15) calendar days of the end of each quarter, MERCK CANADA shall provide HESKA [***] with a line listing of all Product Quality Complaints received by MERCK CANADA during the quarter. In turn, HESKA shall review all quarterly line listings forwarded by MERCK CANADA and notify MERCK CANADA of any discrepancies by no later than ten

(10) calendar days from receipt thereof.

vii.On a weekly basis, MERCK USA shall provide HESKA [***] with a line listing of all Product Quality Complaints directly received by MERCK USA during the prior week. In turn, HESKA shall review all weekly line listings forwarded by MERCK USA and notify MERCK USA of any discrepancies by no later than ten (10) calendar days from receipt thereof.

c.Retention of Records

i.HESKA shall retain all records relating to an Adverse Event, Medication Error, or a Product Quality Complaint for a period of no less than ten (10) years from the date of receipt of notice or information concerning such Adverse Event, Medication Error, or Product Quality Complaint, as the case may be.

d.Responsibilities

i.Training

MERCK is responsible for training but can delegate the training to HESKA to train HESKA employees, agents, and consultants who are engaged in Product Complaint processing and handling for any Product with regard to the obligations undertaken by each party under this License Agreement. MERCK will be responsible for providing training materials that meet the minimum standards to HESKA. HESKA may use its own training material, if approved by MERCK for training. HESKA shall ensure that initial training has to be completed prior to any distribution of the product. HESKA shall also ensure that all new employees, agents, and consultants engaged in handling Product Complaints receive training within the first 30 days of employment, and that biennial refresher training is given to all employees, agents, and consultants

- 15 -

engaged in such activities. HESKA must demonstrate in writing to MERCK [***] that such training has been completed and meets minimum standards as defined by MERCK.

ii.Audit

MERCK will have the right to conduct an audit of HESKA's compliance with complaint reporting under the requirements of this Pharmacovigilance Agreement and with applicable laws and regulations. Any such audit will be conducted during HESKA's normal business hours. MERCK shall provide HESKA at least thirty (30) days written notice of any request to audit HESKA. HESKA shall make itself available in a reasonable time based on MERCK's request.

iii.Quality Management System

HESKA will be responsible for maintaining quality assurance and quality control regarding PV activities including compliance with company procedures and processes.

The responsibilities of each Party regarding pharmacovigilance are set forth in Exhibits C & D attached to this Agreement.

- 16 -

EXHIBIT C

Summary of Pharmacovigilance Responsibilities in USA

PV ACTIVITY	AuthorizationHolder(HESKA)	LicensePartner(MERCKUSA)
Global Safety Database Holder- responsible for maintaining the official central global safety database that shall contain any adverse event report relating to the Product occurring anywhere in the world	X
Perform Training		X
Perform Audit		X
Perform collection of AEs and PQCs associated with the Product occurring in USA and notification of the other Party		X
Perform follow-up of USA AEs and notification of the other Party		X
Perform initial assessment of AEs occurring in USA for seriousness and causality		X
Perform final assessment of AEs occurring in USA for seriousness and causality	X
Report to the applicable Regulatory Authority in USA	X

- 17 -

Conduct reconciliation of USA cases	X	X
Provide list of clinical studies and/or initiatives on the Product for which they are the sponsor on a quarterly basis	X
Perform local Literature searches		X
Prepare Aggregate Reports and submit in USA to the appropriate Regulatory Authority	X
Perform & document Signalling Activities		X
Send notification of PV requests, safety issues or decisions from the local USA regulatory authority within 2 business days to the other Party	X	X
Prepare PV responses to the USA Regulatory Authority for the Product	X	X
Submit PV responses to the USA Regulatory Authority for the Product	X
Manage Health Authority Inquiries in USA	X	X
Maintain an up-to-date USA Product Labelling	X

- 18 -

EXHIBIT D

Summary of Pharmacovigilance Responsibilities in Canada

PV ACTIVITY	AuthorizationHolder(MERCKCANADA)	LicencePartner(HESKA)
Global Safety Database Holder- responsible for maintaining the official central global safety database that shall contain any adverse event report relating to the Product occurring anywhere in the world		X
Perform Training	X
Perform Audit	X
Perform collection of AEs and PQCs associated with the Product occurring in Canada and notification of the other Party	X
Perform follow-up of Canadian AEs and notification of the other Party	X
Perform assessment of AEs occurring in Canada for seriousness and causality	X
Report    to    the    applicable    Regulatory    Authorities    in Canada	X
Conduct reconciliation of Canadian cases	X	X
Provide list of clinical studies and/or initiatives on the Product for which they are the sponsor on a quarterly basis.		X
Perform local Literature searches	X
Prepare Aggregate Reports and submit in Canada to the appropriate Regulatory Authority	X
Perform & document Signalling Activities	X
Send notification of PV requests, safety issues or decisions from the local Canadian regulatory authority	X	X

- 19 -

within 2 business days to the other Party
Prepare PV responses to the Canadian Regulatory Authorities for the Product	X	X
Submit PV responses to the Canadian Regulatory Authorities for the Product	X
Manage Canadian Health Authority Inquiries	X	X
Maintain an up-to-date Canadian Product Labelling		X

- 20 -

EXHIBIT E

Product Complaint Form

[Omitted pursuant to Regulation S-K Item 601(a)(5)]

- 21 -

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kevin S. Wilson, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Heska Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 5, 2020	/s/ Kevin S. Wilson
	KEVIN S. WILSON
	Chief Executive Officer and President
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Catherine Grassman, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Heska Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 5, 2020	/s/ Catherine Grassman
	CATHERINE GRASSMAN
	Executive Vice President, Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin S. Wilson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended September 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heska Corporation, to the best of my knowledge.

Dated: November 5, 2020	By:	/s/ Kevin S. Wilson
	Name:	KEVIN S. WILSON
	Title:	Chief Executive Officer and President

I, Catherine Grassman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended September 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heska Corporation, to the best of my knowledge.

Dated: November 5, 2020	By:	/s/ Catherine Grassman
	Name:	CATHERINE GRASSMAN
	Title:	Executive Vice President, Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Heska Corporation and will be retained by Heska Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2020	Nov. 04, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	000-22427
Entity Registrant Name	HESKA CORPORATION
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	77-0192527
Entity Address, Address Line One	3760 Rocky Mountain Avenue
Entity Address, City or Town	Loveland
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80538
City Area Code	970
Local Phone Number	493-7272
Title of 12(b) Security	Common stock, $0.01 par value
Trading Symbol	HSKA
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		9,454,771
Entity Central Index Key	0001038133
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 84,508	$ 89,030
Accounts receivable, net of allowance for doubtful accounts of $693 and $186, respectively	27,062	15,161
Inventories	39,348	26,601
Net investment in leases, current, net of allowance for doubtful accounts of $110 and $105, respectively	4,726	3,856
Prepaid expenses	4,735	2,219
Other current assets	5,848	3,000
Total current assets	166,227	139,867
Property and equipment, net	34,997	15,469
Operating lease right-of-use assets	5,804	5,726
Goodwill	85,302	36,204
Other intangible assets, net	55,295	11,472
Deferred tax asset, net	5,170	6,429
Net investment in leases, non-current	15,527	14,307
Investments in unconsolidated affiliates	7,185	7,424
Other non-current assets	8,368	7,526
Total assets	383,875	244,424
Current liabilities:
Accounts payable	12,277	6,600
Accrued liabilities	13,290	6,345
Accrued purchase consideration payable	0	14,579
Operating lease liabilities, current	2,099	1,745
Deferred revenue, current, and other	5,853	2,930
Total current liabilities	33,519	32,199
Convertible note, non-current, net	49,921	45,348
Deferred revenue, non-current	4,689	5,966
Other long-term borrowings	621	1,121
Related party loan	1,186	0
Operating lease liabilities, non-current	4,177	4,413
Deferred tax liability	14,653	691
Other liabilities	398	152
Total liabilities	109,164	89,890
Redeemable non-controlling interest and mezzanine equity	(171)	170
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding	0	0
Common stock, $.01 par value, 13,250,000 and 10,250,000 shares authorized, respectively, none issued or outstanding	0	0
Public common stock, $.01 par value, 13,250,000 and 10,250,000 shares authorized, 9,454,771 and 7,881,928 shares issued and outstanding, respectively	95	79
Additional paid-in capital	420,314	290,216
Accumulated other comprehensive income	7,799	513
Accumulated deficit	(153,326)	(136,444)
Total stockholders' equity	274,882	154,364
Total liabilities, mezzanine equity and stockholders' equity	$ 383,875	$ 244,424

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Allowance for doubtful accounts	$ 693	$ 186
Leases, allowance for doubtful accounts	$ 110	$ 105
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	2,500,000	2,500,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Traditional Common Stock
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	13,250,000	10,250,000
Common stock, shares issued (in shares)	0	0
Common stock, shares outstanding (in shares)	0	0
Public Common Stock
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	13,250,000	10,250,000
Common stock, shares issued (in shares)	9,454,771	7,881,928
Common stock, shares outstanding (in shares)	9,454,771	7,881,928

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues [Abstract]
Revenue, net	$ 56,636	$ 31,237	$ 133,001	$ 88,894
Cost of revenue	33,232	17,573	78,285	50,275
Gross profit	23,404	13,664	54,716	38,619
Operating expenses:
Selling and marketing	10,751	6,709	27,714	20,457
Research and development	2,197	2,532	6,021	6,137
General and administrative	10,253	4,230	29,852	12,473
Total operating expenses	23,201	13,471	63,587	39,067
Operating income (loss)	203	193	(8,871)	(448)
Interest and other expense, net	2,011	927	6,353	932
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,808)	(734)	(15,224)	(1,380)
Income tax expense (benefit):
Current income tax expense	370	40	425	112
Deferred income tax expense (benefit)	3,043	(570)	1,268	(2,078)
Total income tax expense (benefit)	3,413	(530)	1,693	(1,966)
Net (loss) income before equity in losses of unconsolidated affiliates	(5,221)	(204)	(16,917)	586
Equity in losses of unconsolidated affiliates	(83)	(147)	(300)	(455)
Net (loss) income after equity in losses of unconsolidated affiliates	(5,304)	(351)	(17,217)	131
Net loss attributable to redeemable non-controlling interest	(85)	(41)	(353)	(132)
Net (loss) income attributable to Heska Corporation	$ (5,219)	$ (310)	$ (16,864)	$ 263
Earnings Per Share [Abstract]
Basic (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.57)	$ (0.04)	$ (1.99)	$ 0.04
Diluted (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.57)	$ (0.04)	$ (1.99)	$ 0.03
Weighted average outstanding shares used to compute basic (loss) earnings per share attributable to Heska Corporation (in shares)	9,123	7,501	8,486	7,461
Weighted average outstanding shares used to compute diluted (loss) earnings per share attributable to Heska Corporation (in shares)	9,123	7,501	8,486	7,960

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Net (loss) income after equity in losses from unconsolidated affiliates	$ (5,304)	$ (351)	$ (17,217)	$ 131
Other comprehensive (loss) income:
Translation adjustments and gains (losses) from intra-entity transactions	5,426	(158)	7,286	(137)
Comprehensive (loss) income	122	(509)	(9,931)	(6)
Comprehensive loss attributable to redeemable non-controlling interest	(85)	(41)	(353)	(132)
Comprehensive (loss) income attributable to Heska Corporation	$ 207	$ (468)	$ (9,578)	$ 126

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Cumulative Effect, Period of Adoption, Adjusted Balance	Preferred Stock	Preferred Stock Cumulative Effect, Period of Adoption, Adjusted Balance	Traditional Common Stock	Traditional Common Stock Cumulative Effect, Period of Adoption, Adjusted Balance	Additional Paid-in Capital	Additional Paid-in Capital Cumulative Effect, Period of Adoption, Adjusted Balance	Accumulated Other Comprehensive Income (Loss)	Accumulated Other Comprehensive Income (Loss) Cumulative Effect, Period of Adoption, Adjusted Balance	Accumulated Deficit	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjustment	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjusted Balance
Beginning balance (in shares) at Dec. 31, 2018				0		7,676,000
Beginning balance at Dec. 31, 2018	$ 122,409			$ 0		$ 77		$ 257,034		$ 277		$ (134,979)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	263											263
Issuance of common stock, net of shares withheld for employee taxes (in shares)						148,000
Issuance of common stock, net of shares withheld for employee taxes	(2,247)					$ 1		(2,248)
Conversion of preferred stock to common stock	29,770							29,770
Stock-based compensation	3,625							3,625
Other comprehensive income (loss)	(137)									(137)
Ending balance (in shares) at Sep. 30, 2019				0		7,824,000
Ending balance at Sep. 30, 2019	153,683			$ 0		$ 78		288,181		140		(134,716)
Beginning balance (in shares) at Jun. 30, 2019				0		7,794,000
Beginning balance at Jun. 30, 2019	122,922			$ 0		$ 78		256,952		298		(134,406)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	(310)											(310)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						30,000
Issuance of common stock, net of shares withheld for employee taxes	213					$ 0		213
Conversion of preferred stock to common stock	29,770							29,770
Stock-based compensation	1,246							1,246
Other comprehensive income (loss)	(158)									(158)
Ending balance (in shares) at Sep. 30, 2019				0		7,824,000
Ending balance at Sep. 30, 2019	153,683			$ 0		$ 78		288,181		140		(134,716)
Beginning balance (in shares) at Dec. 31, 2019				0	0	7,882,000	7,882,000
Beginning balance at Dec. 31, 2019	154,364	$ (18)	$ 154,346	$ 0	$ 0	$ 79	$ 79	290,216	$ 290,216	513	$ 513	(136,444)	$ (18)	$ (136,462)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	(16,864)											(16,864)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						64,000
Issuance of common stock, net of shares withheld for employee taxes	1,398							1,397
Issuance of preferred stock, net of issuance costs (in shares)				122,000
Issuance of preferred stock, net of issuance costs	121,786			$ 1				121,785
Conversion of preferred stock to common stock (in shares)				(122,000)		1,509,000
Conversion of preferred stock to common stock	0			$ (1)		$ 15		(14)
Stock-based compensation	6,930							6,930
Other comprehensive income (loss)	7,286									7,286
Ending balance (in shares) at Sep. 30, 2020				0		9,455,000
Ending balance at Sep. 30, 2020	274,882			$ 0		$ 95		420,314		7,799		(153,326)
Beginning balance (in shares) at Jun. 30, 2020				0		9,415,000
Beginning balance at Jun. 30, 2020	270,047			$ 0		$ 94		415,687		2,373		(148,107)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	(5,219)											(5,219)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						40,000
Issuance of common stock, net of shares withheld for employee taxes	496					$ 1		495
Stock-based compensation	4,132							4,132
Other comprehensive income (loss)	5,426									5,426
Ending balance (in shares) at Sep. 30, 2020				0		9,455,000
Ending balance at Sep. 30, 2020	$ 274,882			$ 0		$ 95		$ 420,314		$ 7,799		$ (153,326)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net (loss) income after equity in losses from unconsolidated affiliates	$ (17,217)	$ 131
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
Depreciation and amortization	8,041	3,759
Non-cash impact of operating leases	1,431	1,126
Deferred income tax expense (benefit)	1,268	(2,078)
Stock-based compensation	6,930	3,625
Equity in losses of unconsolidated affiliates	300	455
Amortization of debt discount and issuance costs	4,573	282
Other losses	62	340
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable	(1,813)	2,808
Inventories	(3,901)	(438)
Other assets	(1,423)	(3,113)
Accounts payable	(2,708)	(2,491)
Due to related parties	0	(226)
Other liabilities	(3,644)	(7,456)
Net cash used in operating activities	(8,101)	(3,276)
Cash flows from investing activities:
Investment in subsidiary, net of cash acquired	0	(622)
Purchases of property and equipment	(486)	(722)
Net cash used in investing activities	(120,043)	(1,344)
Cash flows from financing activities:
Borrowings on line of credit	0	6,750
Repayments of line of credit borrowings	0	(12,750)
Payment of debt issuance costs	0	(3,072)
Payment of preferred stock issuance costs	(214)	0
Preferred stock proceeds	122,000	0
Convertible debt proceeds	0	86,250
Proceeds from issuance of common stock	2,050	1,233
Repurchase of common stock	(652)	(3,480)
Repayments of other debt	(193)	(1,164)
Borrowings on other debts	508	0
Net cash provided by financing activities	123,499	73,767
Foreign exchange effect on cash and cash equivalents	123	(31)
Net increase (decrease) in cash and cash equivalents	(4,522)	69,116
Cash and cash equivalents, beginning of period	89,030	13,389
Cash and cash equivalents, end of period	84,508	82,505
Supplemental disclosure of cash flow information:
Non-cash transfers of equipment between inventory and property and equipment, net	3,328	1,118
Non-cash conversion of preferred stock to common stock	122,000	0
Accrued debt issuance costs	0	105
Purchase price adjustment receivable for scil	1,273	0
Capex purchases - accrued but unpaid	40	0
CVM
Cash flows from investing activities:
Acquisition of CVM	(14,420)	0
Scil Animal Care Company
Cash flows from investing activities:
Acquisition of CVM	$ (105,137)	$ 0

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CAPITAL STOCK - ADDITIONAL INFORMATION (Details) $ in Thousands		9 Months Ended
	Mar. 30, 2020 USD ($) $ / shares shares	Sep. 30, 2020 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility (as a percent)		0.38%
Historical volatility rate (as a percent)		46.30%
Expected lives (in years)		5 years 3 months 21 days
Weighted average purchase price of shares purchased (in dollars per share)		$ 83.35
Preferred stock, shares issued (in shares) | shares		0
Preferred stock, par value (in dollars per share)		$ 0.01
Payments of stock issuance costs | $		$ 214
Preferred Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Preferred stock, shares issued (in shares) | shares	122,000
Preferred stock, par value (in dollars per share)	$ 0.01
Sale of stock, price per share	$ 1,000
Sale of stock, consideration received per transaction | $	$ 122,000
Payments of stock issuance costs | $	$ 200
Convertible, preferred stock, shares issuable upon conversion	12.4
Preferred stock, convertible, conversion price (in dollars per share)	$ 80.85
Conversion of convertible securities (in shares) | shares		(122,000)

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OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Heska Corporation and its wholly-owned subsidiaries ("Heska", the "Company", "we" or "our") sell veterinary and animal health diagnostic and specialty products. Our offerings include Point of Care diagnostic laboratory instruments and supplies; digital imaging diagnostic products, software and services; vaccines; local and cloud-based data services; allergy testing and immunotherapy; and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on supporting veterinarians in the canine and feline healthcare space.

Basis of Presentation and Consolidation

The accompanying interim Condensed Consolidated Financial Statements are unaudited. The interim unaudited Condensed Consolidated Financial Statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal, recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2020, and the results of our operations and statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019.

The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. Our unaudited Condensed Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries since their respective dates of acquisitions. All intercompany accounts and transactions have been eliminated in consolidation. Where our ownership of a subsidiary is less than 100%, the non-controlling interest is reported on our Condensed Consolidated Balance Sheets. The non-controlling interest in our consolidated net income is reported as "Net loss attributable to redeemable non-controlling interest" on our Condensed Consolidated Statements of (Loss) Income. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any future period, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies as described below. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other financial information filed with the SEC.

Beginning in the first quarter of 2020, to limit the spread of COVID-19, governments took various actions including the issuance of stay-at-home policies and social distancing procedures and guidelines, causing some businesses to adjust, reduce or suspend business and operating activities. Veterinary care is widely recognized as an "essential" service for pet owners, and veterinarians continued to deliver essential medical care for sick and injured pets. The stay-at-home policies deployed early in 2020 to combat the spread of COVID-19 resulted in a decrease in companion animal clinical visits, including delay of elective procedures and wellness visits and as a result lowers demand for diagnostic testing services. During the second and third quarters of 2020, certain local, state and federal governments began to ease the stay-at-home policies and allowed more businesses and facilities to re-open, leading to a recovery in companion animal clinical visits and associated demand for our diagnostic products. The extent to which the continuation, or a possible second-wave outbreak of COVID-19, or an outbreak of other health epidemics could impact our business, results of operations and financial condition, including the potential for write-offs or impairments of assets and suspension of capital investments, will depend on future developments. We are unable to predict with certainty the effects of the COVID-19 pandemic on our customers, suppliers and vendors, as well as the actions of governments, and

when and to what extent normal economic and operating conditions can resume; these effects may differ from those assumed in our projected estimates. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic impact that has occurred or may occur in the future.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the net realizable value of inventory; determining future costs associated with warranties provided; determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights; evaluating long-lived and intangible assets and investments for estimated useful lives and impairment; estimating the useful lives of instruments under leasing arrangements; determining the allocation of purchase price under purchase accounting; estimating the expense associated with the granting of stock; determining the need for, and the amount of a valuation allowance on deferred tax assets; determining the value of the non-controlling interest in a business combination; and determining the fair value of the liability component associated with the issuance of convertible debt. We have made estimates of the impact of the COVID-19 pandemic within our financial statements, and our actual results may differ from these estimates and there may be changes to those estimates in future periods.

Critical Accounting Policies

Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019, and other than the recently adopted accounting pronouncements described below have not changed materially since such filing.

Adoption of New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in November 2018. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which further clarifies and improves guidance related to accounting for credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). This ASU provides relief to certain entities adopting ASU 2016-13. The amendment provides entities with an option to irrevocably elect the fair value option for certain financial assets.

The Company adopted ASU 2016-13 with a cumulative-effect adjustment in retained earnings as of January 1, 2020. The impact of the adoption was not material to the Company's consolidated financial statements. We

continuously monitor our customers' credit worthiness and establish allowances for estimated credit losses related to our accounts receivable, net investment in leases, and promissory notes. Our allowances are established based on factors surrounding the credit risk of specific customers, historical experience including collections and write-off history, and current economic conditions. Account balances are considered past due if payments have not been received within agreed upon invoice and/or contract terms and the Company may employ collection agencies and legal counsel to pursue recovery of defaulted amounts. Account balances are written off against the allowance after all collection efforts have been exhausted and it is probable the receivable will not be recovered. The Company also performs a qualitative assessment, on a quarterly basis, to monitor economic factors and other uncertainties that may require additional adjustments for the expected credit loss allowance. The Company will continue to actively monitor the impact of the recent coronavirus ("COVID-19") pandemic on expected credit losses.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740, and also clarifies and amends existing guidance to improve consistent application. This guidance will be effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This guidance will be effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of this update on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which simplifies the accounting for certain convertible instruments. The update reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible debt will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

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REVENUE

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE

REVENUE

We separate our goods and services among two reportable segments, North America and International. The two segments consist of revenue originating from:

•North America: including the United States, Canada and Mexico

•International: all geographies outside North America, including Australia, France, Germany, Italy, Malaysia, Spain and Switzerland

Refer to Note 17 for further detail regarding the change in reportable segments which required recast of prior period presentation.

The following table summarizes our segment revenue (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
North America Revenue:
POC Lab Instruments & Other	$	2,458	$	1,916	$	5,772	$	5,222
Sales-type leases	1,310		1,587		3,574		4,821
POC Lab Consumables	16,071		13,953		43,294		39,452
POC Imaging	5,268		4,550		12,912		13,781
PVD	5,437		2,702		14,821		8,093
OVP	3,906		4,897		10,708		13,123
Total North America Revenue	$	34,450	$	29,605	$	91,081	$	84,492
International Revenue:
POC Lab Instruments & Other	$	2,643	$	1	$	4,759	$	17
Sales-type leases	277		—		601		—
POC Lab Consumables	11,387		70		21,418		94
POC Imaging	7,029		785		12,791		2,194
PVD	850		776		2,351		2,097
OVP	—		—		—		—
Total International Revenue	$	22,186	$	1,632	$	41,920	$	4,402
Total Revenue	$	56,636	$	31,237	$	133,001	$	88,894

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include non-cancelable purchase orders, the non-lease portion of minimum purchase commitments under long-term supply arrangements, extended warranty, service and other long-term contracts. Remaining performance obligations do not include revenue from contracts with customers with an original term of one year or less, revenue from long-term supply arrangements with no minimum purchase requirements, revenue expected from purchases made in excess of the minimum purchase requirements, or revenue from instruments leased to customers. While the remaining performance obligation disclosure is similar in concept to backlog, the definition of remaining performance obligations excludes leases and contracts that provide the customer with the right to cancel or terminate for convenience with no substantial penalty, even if historical experience indicates the likelihood of cancellation or termination is remote. Additionally, the Company has elected to exclude contracts with customers with an original term of one year or less from remaining performance obligations.

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining minimum performance obligations was approximately $135.5 million. As of September 30, 2020, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2020 (remaining)	$	7,773
2021	30,342
2022	27,155
2023	24,349
2024	20,007
Thereafter	25,843
	$	135,469

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled contract asssets, deferred revenue, and customer deposits and billings in excess of revenue recognized. In addition, the Company defers certain costs incurred to obtain contracts.

Contract Asset

Certain unbilled amounts related to long-term contracts for which we provide a free term to the customer are recorded in "Other current assets" and "Other non-current assets" on the accompanying Condensed Consolidated Balance Sheets. The collection of these balances occurs over the term of the underlying contract. The balances as of September 30, 2020 were $1.3 million and $4.0 million for current and non-current assets, respectively, shown net of related unearned interest. The balances as of December 31, 2019 were $1.1 million and $3.7 million for current and non-current assets, respectively, shown net of related unearned interest.

Contract Liabilities

The Company receives cash payments from customers for licensing fees or other arrangements that extend for a specified term. These contract liabilities are classified as either current or long-term in the Condensed Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. As of September 30, 2020 and December 31, 2019, contract liabilities were $8.2 million and $8.7 million, respectively, and are included within "Deferred revenue, current, and other" and "Deferred revenue, non-current" in the accompanying Condensed Consolidated Balance Sheets. The decrease in the contract liability balance during the nine-month period ended September 30, 2020 is approximately $3.4 million of revenue recognized during the period, offset by approximately $2.3 million of additional deferred sales in 2020 and the acquisition of scil contract liabilities of $0.6 million. Contract liabilities are reported on the accompanying Condensed Consolidated Balance Sheets on a contract-by-contract basis

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ACQUISITION AND RELATED PARTY ITEMS

9 Months Ended

Sep. 30, 2020

Business Combinations and Related Party Disclosure [Abstract]

ACQUISITION AND RELATED PARTY ITEMS

ACQUISITIONS AND RELATED PARTY ITEMS

scil Acquisition

On April 1, 2020, the Company completed the acquisition of scil animal care company GmbH (“scil”) from Covetrus, Inc. At closing, the Company paid approximately $111.0 million in cash to acquire 100% of the

capital stock of scil. The acquisition represents a key milestone in the Company's long-term strategic plan creating a global veterinary diagnostics company with leadership positions in key geographic markets.

The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of April 1, 2020. The total purchase consideration is subject to customary working capital adjustments.

In the third quarter of 2020, the estimated purchase consideration decreased to approximately $109.8 million as a result of post-closing adjustments to the settlement exchange rate, the net working capital and other adjustments. The resulting goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the experienced workforce acquired. Of the $45.8 million of goodwill acquired, $37.3 million is allocated to our International segment and $8.5 million is allocated to our North America segment. All of the goodwill is tax deductible for U.S. federal income tax purposes which may result in a decrease to the Company's future U.S. federal tax liability.

The information below represents the preliminary purchase price allocation of scil (in thousands):

	April 1, 2020
Total purchase consideration	$	109,753
Cash and cash equivalents	5,889
Accounts receivable	10,707
Inventories	11,349
Net investment in leases, current	311
Prepaid expenses	1,404
Other current assets	405
Property and equipment, net	19,320
Operating lease right-of-use assets	877
Other intangible assets, net	44,517
Net investment in leases, non-current	1,027
Investments in unconsolidated affiliates	55
Other non-current assets	291
Total assets acquired	96,152
Accounts payable	8,221
Accrued liabilities	6,355
Operating lease liabilities, current	356
Deferred revenue, current, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred tax liability	13,147
Other liabilities	276
Net assets acquired	63,954
Goodwill	45,799
Total fair value of consideration transferred	$	109,753

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information currently available, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the acquisition. Among items still being evaluated is an existing uncertain tax position of approximately $1.0 million that scil had prior to acquisition. The uncertain tax position may or may not change based on the results of the evaluation. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the acquisition from those valuations would result in a corresponding change in the amount of goodwill from the acquisition. During the third quarter of 2020, the Company reclassified certain assets and liabilities to align with the presentation of our Condensed Consolidated Balance Sheet. There were no significant measurement period adjustments to the fair value of assets acquired and liabilities assumed.

Intangible assets acquired, amortization method and estimated useful life as of April 1, 2020, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	10 years	Straight-line	$	36,272
Internally developed software	7 years	Straight-line	353
Backlog	0.2 years	Straight-line	210
Non-compete agreements	2 years	Straight-line	60
Trade name subject to amortization	0.8 years	Straight-line	66
Trademarks and trade names not subject to amortization	n/a	Indefinite	7,556
Total intangible assets acquired			$	44,517

scil generated net revenue of $37.7 million and a net loss of $0.2 million for the period from April 1, 2020 to September 30, 2020.

The Company incurred acquisition related costs of approximately $0.7 million and $5.7 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.

Unaudited Pro Forma Financial Information

The following tables present unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2019 (in thousands):

	Nine Months Ended September 30, 2020
Revenue, net	$	151,522
Net (loss) income before equity in losses of unconsolidated affiliates	$	(17,733)
Net (loss) income attributable to Heska Corporation	$	(17,680)

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	49,346	$	144,372
Net (loss) income before equity in losses of unconsolidated affiliates	$	(451)	$	(1,407)
Net (loss) income attributable to Heska Corporation	$	(557)	$	(1,730)

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of scil and further reflects the effect of purchase accounting adjustments, including: (i) amortization of acquired intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property, plant and equipment, and (iii) historical intercompany sales between the Company and scil. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

CVM

On December 5, 2019, Heska entered into a definitive agreement to purchase 100% of the outstanding shares of CVM Diagnostico Veternario S.L. and CVM Ecografia S.L. (collectively, “CVM”), primarily to expand international operations in Europe. CVM is headquartered in Tudela, outside of Madrid, Spain. CVM mainly operates in Spain. The terms of the agreement transferred control of CVM upon signing, and the transfer of the purchase price of approximately $14.4 million and shares occurred in January 2020. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $9.0 million was allocated to goodwill within the International segment based on the preliminary purchase price allocation, all of which is tax deductible for U.S. federal income tax purposes.

The preliminary fair values allocated to CVM's assets and liabilities as of the acquisition date, as well as the purchase price, are reflected in the table below (in thousands):

	December 5, 2019
Consideration paid to former owners	$	14,420
Cash and cash equivalents	1,226
Accounts receivable	583
Inventories	1,621
Other current assets	1,186
Property and equipment	345
Other intangible assets	2,608
Other non-current assets	460
Total assets acquired	8,029
Accounts payable	(94)
Accrued liabilities	(471)
Current portion of deferred revenue, and other	(54)
Deferred tax liability	(683)
Other long-term borrowings	(1,109)
Other liabilities	(157)
Net assets acquired	5,461
Goodwill	8,959
Total fair value of consideration transferred	$	14,420

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the

acquisition. During the nine months ended September 30, 2020, the Company made certain valuation adjustments to provisional amounts previously recognized. These adjustments resulted in a net $110 thousand increase of goodwill, primarily due to fair value adjustments resulting in a decrease in net identifiable assets acquired.

Intangible assets acquired, amortization method and estimated useful life as of December 5, 2019, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	6 years	Straight-line	$	2,440
Trade name	4 years	Straight-line	111
Developed technology	n/a	Indefinite	57
			$	2,608

CVM generated net revenue of $0.8 million and net income of $0.1 million, for the period from December 6, 2019 to December 31, 2019. CVM generated net revenue of $2.2 million and $5.2 million and net income of $0.3 million and $0.4 million for the three and nine months ended September 30, 2020, respectively.

The Company incurred acquisition related costs of approximately $44 thousand and $0.3 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.

Unaudited Pro Forma Financial Information

The following table presents unaudited supplemental pro forma financial information as if the CVM acquisition had occurred on January 1, 2019 (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	32,910	$	94,462
Net (loss) income before equity in losses of unconsolidated affiliates	$	164	$	789
Net (loss) income attributable to Heska Corporation	$	58	$	466

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of CVM and further reflects the effect of purchase accounting adjustments. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

CVM management conducts related party activities with Practice Clinicas Veterinarias Moviles, S.L. ("CVM Practice"), which is owned by CVM's management. CVM leases two warehouses from CVM Practice and is the debtor of two loans with CVM Practice. CVM Practice charged CVM $23 thousand and $0 during the nine months ended September 30, 2020 and 2019, respectively, all of which is related to lease payments. The right-of-use asset and lease liability amounts related to the warehouse leases were approximately $169 thousand and $0 as of September 30, 2020 and December 31, 2019, respectively. All accrued interest is due upon termination of the loans with CVM Practice and as such, the amount due includes principal and interest. The Company had payables to CVM Practice of approximately $1.2 million and $0 as of September 30, 2020 and December 31, 2019, respectively, which is included in "Related party loan" on the Company's Condensed Consolidated Balance Sheet. The change from December 31, 2019 to September 30, 2020 is due

to a reorganization regarding CVM management and the control that they exercise subsequent to the scil acquisition.

Other Related Party Activities

Cuattro, LLC ("Cuattro"), which is owned by Kevin S. Wilson, the CEO and President of the Company, in addition to Mrs. Wilson and trusts for the benefit of Mr. and Mrs. Wilson's children and family, charged Heska Imaging $0 and $6 thousand during the nine months ended September 30, 2020 and 2019, respectively. The 2019 charges primarily related to digital imaging products, pursuant to an underlying supply contract that contains minimum purchase obligations, software and services as well as other operating expenses. Pursuant to the December 21, 2018 transaction in which the Company acquired certain assets from Cuattro, Cuattro was obligated, without further compensation, to assist the Company with the implementation of a third-party image hosting platform and necessary data migration. The implementation and migration were completed, on schedule, as of September 30, 2020 and as such there will be no further related party activities with Cuattro.

The Company had no receivables from or payables to Cuattro as of September 30, 2020 or December 31, 2019.

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The carrying values of investments in unconsolidated affiliates, categorized by type of investment, is as follows (in thousands):

	September 30, 2020		December 31, 2019
Equity method investment	$	4,167	$	4,406
Non-marketable equity security investment	3,018		3,018
	$	7,185	$	7,424

Equity Method Investment

On September 24, 2018, we invested approximately $5.1 million, including costs, to acquire an equity interest in a business as part of our product development strategy. As of September 30, 2020, our ownership interest in the business was 29.1%. In connection with the investment, the Company entered into a Manufacturing Supply Agreement that grants the Company global exclusivity to specified products to be delivered under the agreement for a 15-year period that begins upon the Company's receipt and acceptance of an initial order under the agreement. The Company accounts for this investment using the equity method of accounting. Under the equity method, the carrying value of the investment is adjusted for the Company's proportionate share of the investee's reported earnings or losses with the corresponding share of earnings or losses reported as Equity in losses of unconsolidated affiliates, listed below Net income before equity in losses of unconsolidated affiliates within the Condensed Consolidated Statements of (Loss) Income.

Non-Marketable Equity Security Investment

On August 8, 2018, the Company invested approximately $3.0 million, including costs, in exchange for preferred stock. The Company’s investment is a non-marketable equity security, recorded using the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.

As part of the agreement, the Company entered into a Supply and License Agreement, which provides that the investee produce and commercialize products that will enhance the Company's diagnostic portfolio. As part of this agreement, the Company made an upfront payment of $1.0 million related to a worldwide exclusive license agreement over a 20-year period, recorded in both short and long-term other assets. In addition, the agreement provides for an additional contingent payment of $10.0 million, relating to the successful achievement of sales milestones. This potential future milestone payment has not yet been accrued as it is not deemed by the Company to be probable at this time.Both parties in this arrangement are active participants and are exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. The parties are actively working on developing and testing the product as well as funding the research and development. Heska classifies the amounts paid for research and development work within the North America segment research and development operating expenses. Expense is recognized ratably when incurred and in accordance with the development plan.

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INCOME TAXES

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our total income tax expense/(benefit) for our loss before income taxes were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,808)	$	(734)	$	(15,224)	$	(1,380)
Total income tax expense (benefit)	$	3,413	$	(530)	$	1,693	$	(1,966)

There were cash payments for income taxes of $0.5 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, and there were cash payments of $1 thousand and cash refunds, net of payments, of $0.1 million, respectively, for income taxes for the three and nine months ended September 30, 2019. The Company’s tax expense was $3.4 million and $1.7 million for the three and nine months ended September 30, 2020, respectively, compared to the tax benefit of $0.5 million and $2.0 million for the three and nine months ended September 30, 2019, respectively. The increase in tax expense in the nine month period is due to the higher financial loss offset by a $3.9 million increase in the partial valuation allowance further discussed below. The Company recognized $0.1 million in excess tax benefits related to employee share-based compensation for the three months ended September 30, 2020, compared to $0.1 million recognized for the three months ended September 30, 2019. The Company recognized $0.5 million in excess tax benefits related to employee share-based compensation for the nine months ended September 30, 2020, compared to $1.5 million recognized for the nine months ended September 30, 2019.

The Company considered multiple factors in assessing the need for an increase in the partial valuation allowance against the Company’s deferred tax assets as of September 30, 2020. Significant factors such as the continued challenge and uncertainty of the COVID-19 pandemic, increased future stock compensation expenses from achievement of Company performance metrics, required capitalization of research and development expenses beginning in 2022 and acquisition related expenses from our business growth strategy have negatively impacted our future taxable income projections. These future projections indicate a larger portion of the company’s deferred tax assets will likely expire unrealized. As a result, the Company recorded an additional $3.6 million tax effected increase to the current partial valuation allowance against the Company's deferred tax assets during the three months ended September 30, 2020. As of September 30, 2020, the Company had a gross federal net operating loss carryforward of approximately $47.0 million and a gross partial valuation allowance of approximately $40.0 million recorded against the carryforward. The Company

will continue to closely monitor the need for an additional valuation allowance against its deferred tax assets in each subsequent reporting period which can be impacted by actual operating results compared to the Company's forecast.

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LEASES

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

LEASES, LESSEE

LEASES

Lessee Accounting

The Company leases buildings, office equipment, and vehicles. The following table summarizes the Company's operating and finance lease balances (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	5,804	$	5,726
Finance	Property and equipment, net	1,824		81
Total Leased Assets		$	7,628	$	5,807
Liabilities
Operating	Operating lease liabilities, current	$	2,099	$	1,745
	Operating lease liabilities, non-current	4,177		4,413
Finance	Deferred revenue, current, and other	291		47
	Other liabilities	283		37
Total Lease Liabilities		$	6,850	$	6,242

For the three and nine months ended September 30, 2020, operating lease expense was approximately $0.7 million and $2.0 million, respectively, including immaterial variable lease costs. For the three and nine months ended September 30, 2019, operating lease expense was approximately $0.6 million and $1.8 million, respectively, including immaterial variable lease costs.

For the three and nine months ended September 30, 2020, finance lease amortization expense was $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2019, finance lease amortization expense was $18 thousand and $32 thousand, respectively. For the three and nine months ended September 30, 2020, finance lease interest expense was $4 thousand and $7 thousand, respectively. For the three and nine months ended September 30, 2019, finance lease interest expense was $2 thousand and $2 thousand, respectively.

Supplemental cash flow information related to the Company's operating and finance leases for the nine months ended September 30, 2020 and 2019, respectively, was as follows (in thousands):

	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - operating leases	$	1,617	$	1,344
Operating cash outflows - finance leases	$	6	$	2
Financing cash outflows - finance leases	$	166	$	25
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	636	$	498
Finance leases	$	120	$	10

The following table presents the weighted average remaining lease term and weighted average discount rate related to the Company's leases:

	September 30, 2020		December 31, 2019
Weighted average remaining lease term:
Operating	3.3 years		3.8 years
Finance	3.0 years		2.0 years
Weighted average discount rate:
Operating	4.2	%	4.4	%
Finance	2.2	%	4.0	%

The following table presents the maturity of the Company's lease liabilities as of September 30, 2020 (in thousands):

Year Ending December 31,	Operating Leases		Finance Leases
Remainder of 2020	$	817	$	80
2021	1,932		265
2022	1,678		121
2023	1,893		47
2024	128		37
Thereafter	260		43
Total lease payments	6,708		593
Less: imputed interest	432		19
Total lease liabilities	$	6,276	$	574

Lessor Accounting

The Company enters into sales-type leases as part of our subscription agreements. The following table presents the maturity of the Company's lease receivables as of September 30, 2020 (in thousands):

Year Ending December 31,
Remainder of 2020	$	1,192
2021	4,915
2022	4,643
2023	3,929
2024	2,960
Thereafter	2,733
Total undiscounted future maturities	20,372
Less: interest	119
Total lease receivables	$	20,253

LEASES, LESSOR

LEASES

Lessee Accounting

The Company leases buildings, office equipment, and vehicles. The following table summarizes the Company's operating and finance lease balances (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	5,804	$	5,726
Finance	Property and equipment, net	1,824		81
Total Leased Assets		$	7,628	$	5,807
Liabilities
Operating	Operating lease liabilities, current	$	2,099	$	1,745
	Operating lease liabilities, non-current	4,177		4,413
Finance	Deferred revenue, current, and other	291		47
	Other liabilities	283		37
Total Lease Liabilities		$	6,850	$	6,242

For the three and nine months ended September 30, 2020, operating lease expense was approximately $0.7 million and $2.0 million, respectively, including immaterial variable lease costs. For the three and nine months ended September 30, 2019, operating lease expense was approximately $0.6 million and $1.8 million, respectively, including immaterial variable lease costs.

For the three and nine months ended September 30, 2020, finance lease amortization expense was $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2019, finance lease amortization expense was $18 thousand and $32 thousand, respectively. For the three and nine months ended September 30, 2020, finance lease interest expense was $4 thousand and $7 thousand, respectively. For the three and nine months ended September 30, 2019, finance lease interest expense was $2 thousand and $2 thousand, respectively.

Supplemental cash flow information related to the Company's operating and finance leases for the nine months ended September 30, 2020 and 2019, respectively, was as follows (in thousands):

	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - operating leases	$	1,617	$	1,344
Operating cash outflows - finance leases	$	6	$	2
Financing cash outflows - finance leases	$	166	$	25
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	636	$	498
Finance leases	$	120	$	10

The following table presents the weighted average remaining lease term and weighted average discount rate related to the Company's leases:

	September 30, 2020		December 31, 2019
Weighted average remaining lease term:
Operating	3.3 years		3.8 years
Finance	3.0 years		2.0 years
Weighted average discount rate:
Operating	4.2	%	4.4	%
Finance	2.2	%	4.0	%

The following table presents the maturity of the Company's lease liabilities as of September 30, 2020 (in thousands):

Year Ending December 31,	Operating Leases		Finance Leases
Remainder of 2020	$	817	$	80
2021	1,932		265
2022	1,678		121
2023	1,893		47
2024	128		37
Thereafter	260		43
Total lease payments	6,708		593
Less: imputed interest	432		19
Total lease liabilities	$	6,276	$	574

Lessor Accounting

The Company enters into sales-type leases as part of our subscription agreements. The following table presents the maturity of the Company's lease receivables as of September 30, 2020 (in thousands):

Year Ending December 31,
Remainder of 2020	$	1,192
2021	4,915
2022	4,643
2023	3,929
2024	2,960
Thereafter	2,733
Total undiscounted future maturities	20,372
Less: interest	119
Total lease receivables	$	20,253

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share ("EPS") for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income attributable to Heska Corporation	$	(5,219)	$	(310)	$	(16,864)	$	263
Basic weighted-average common shares outstanding	9,123		7,501		8,486		7,461
Assumed exercise of dilutive stock options and restricted shares	—		—		—		499
Diluted weighted-average common shares outstanding	$	9,123	$	7,501	$	8,486	$	7,960
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.04
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.03

The following potentially outstanding common shares from convertible preferred stock, convertible senior notes, stock options and restricted stock awards were excluded from the computation of diluted EPS because the effect would have been antidilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Convertible preferred stock	—	—	611	—
Convertible senior notes	123	—	56	—
Stock options and restricted stock	312	273	329	272
	435	273	996	272

As more fully described in Note 16, our Notes are convertible under certain circumstances, as defined in the indenture, into a combination of cash and shares of our common stock. The Company intends to settle the principal value of the Notes in cash and issue shares of our common stock to settle the intrinsic value of the conversion feature. The Company will use the treasury stock method when calculating the potential dilutive effect of the conversion feature on earnings per share, if any. Potential dilution upon conversion of the Notes occurs when the average market price per share of our common stock is greater than the conversion price of the Notes of $86.63. For the periods presented, all potentially dilutive shares relating to the Notes were not included in the computation of diluted EPS as the effect would have been anti-dilutive.

As discussed in Note 12, the Company issued and sold an aggregate of 122,000 shares of its Preferred Stock to certain investors in a private placement offering. The shares were converted into 1,508,964 shares of Public Common Stock, effective on April 21, 2020. The potential dilutive effect of the convertible preferred stock was calculated using the if-converted method for the period the preferred shares were outstanding. For the three and nine months ended September 30, 2020, these shares were excluded from the computation of diluted EPS because the effect would have been antidilutive.

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GOODWILL AND OTHER INTANGIBLES

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

GOODWILL AND OTHER INTANGIBLES

The following summarizes the change in goodwill during the nine months ended September 30, 2020 (in thousands):

Carrying amount, December 31, 2019	$	36,204
Goodwill attributable to acquisitions	45,909
Foreign currency adjustments	3,189
Carrying amount, September 30, 2020	$	85,302

Other intangibles consisted of the following (in thousands):

	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount		Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships and other	$	45,053	$	(5,067)	$	39,986	$	6,205	$	(2,226)	$	3,979
Developed technology	8,648		(1,458)		7,190		8,200		(819)		7,381
Trade names	188		(76)		112		112		—		112
Intangible assets not subject to amortization:
Trade names	8,007		—		8,007		—		—		—
Total intangible assets	$	61,896	$	(6,601)	$	55,295	$	14,517	$	(3,045)	$	11,472

Amortization expense relating to other intangibles was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization expense	$	1,502	$	346	$	3,556	$	953

The remaining weighted-average amortization period for intangible assets is approximately 8.9 years.

Estimated amortization expense related to intangibles for each of the five years from 2020 (remaining) through 2024 and thereafter is as follows (in thousands):

Year Ending December 31,
2020 (remaining)	$	1,456
2021	5,696
2022	5,661
2023	5,300
2024	5,174
Thereafter	24,001
Total amortization related to finite-lived intangible assets	$	47,288
Indefinite-lived intangible assets	8,007
Net intangible assets	$	55,295

As a result of the recent global economic disruption and uncertainty due to the COVID-19 pandemic, the Company performed a qualitative assessment during the first quarter. Based on the interim assessment performed, we concluded that there was no triggering event and additionally, no indications of impairment existed. No triggering events were identified in the third quarter of 2020 to require additional impairment testing.

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Land	$	2,460	$	694
Building	12,254		3,845
Machinery and equipment	38,811		28,777
Office furniture and equipment	2,004		1,345
Computer hardware and software	4,631		3,408
Leasehold and building improvements	10,696		10,558
Construction in progress	40		671
Property and equipment, gross	70,896		49,298
Less accumulated depreciation	(35,899)		(33,829)
Total property and equipment, net	$	34,997	$	15,469

The Company has subscription agreements whereby its instruments in inventory may be placed at a customer's location on a rental basis. For instruments classified as operating leases, the cost of these instruments is transferred to machinery and equipment and depreciated, typically over a 5 to 7 year period depending on the circumstance under which the instrument is placed with the customer. Our cost of instruments under operating leases as of September 30, 2020 and December 31, 2019, was $8.5 million and $8.1 million, respectively, before accumulated depreciation of $4.0 million and $4.6 million, respectively.

Depreciation expense was $1.7 million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively, and $4.3 million and $2.8 million for the nine months ended September 30, 2020 and 2019, respectively.

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INVENTORIES, NET

9 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

INVENTORIES, NET

INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Raw materials	$	12,201	$	14,597
Work in process	4,653		2,730
Finished goods	22,494		9,274
Total inventories	$	39,348	$	26,601

Inventories are measured on a first-in, first-out basis and stated at lower of cost or net realizable value.

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ACCRUED LIABILITIES

9 Months Ended

Sep. 30, 2020

Payables and Accruals [Abstract]

ACCRUED LIABILITIES

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Accrued payroll and employee benefits	$	5,792	$	1,175
Accrued property taxes	500		681
Accrued purchase orders	1,965		739
Accrued taxes	2,046		586
Other	2,987		3,164
Total accrued liabilities	$	13,290	$	6,345

Other accrued liabilities consist of items that are individually less than 5% of total current liabilities.

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CAPITAL STOCK

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

CAPITAL STOCK

CAPITAL STOCK

During the nine months ended September 30, 2020, the Company granted the following stock options and restricted stock awards:

	Nine Months Ended September 30, 2020
	Options/Awards Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	323,250	$	25.97
Restricted stock awards	65,284	$	83.35

The Company used the Black-Scholes option pricing model to determine the grant date fair value of stock options with service and/or company performance conditions. The model used the following weighted average assumptions: risk-free interest rate of 0.38%, expected volatility of 46.3% based on historical stock volatility, expected term of 5.31 years based on historical exercises, and no expected dividend yield. For stock options with market conditions, we utilized a Monte Carlo simulation model to estimate grant date fair value. Compensation cost is recognized ratably over the vesting periods of the options.

We valued the restricted stock awards related to service and/or company performance targets based on grant date fair value and will expense over the period when achievement of those conditions is deemed probable.

Series X Convertible Preferred Stock

On March 30, 2020, the Company completed a private placement offering in which the Company issued and sold an aggregate of 122,000 shares of its Series X Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"). The shares of Preferred Stock issued and sold were priced at $1,000 per share (the “Stated Value”), resulting in gross proceeds of $122.0 million, less issuance costs of $0.2 million. The Company used approximately $111.0 million of the proceeds from the offering to fund the April 1, 2020 acquisition of scil and plans to use the remaining proceeds for working capital and general corporate purposes.

The offering was made pursuant to the Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of January 12, 2020, by and among the Company and certain investors, and subsequent amendment (the “Securities Purchase Agreement Amendment”) to the Securities Purchase agreement, entered

into by the Company and each investor on March 30, 2020 (the Securities Purchase Agreement as amended by the Securities Purchase Agreement Amendment, the “Amended Securities Purchase Agreement”). The shares of Preferred Stock were convertible into shares of the Company’s Common Stock at an initial ratio of approximately 12.4 shares of Common Stock for each share of Preferred Stock (equivalent to a conversion price of approximately $80.85 per share of common stock), at the option of the holders of the Preferred Stock or the Company, subject to the Company possessing sufficient unissued and otherwise unreserved shares of Common Stock under the Company’s Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”). On April 14, 2020, the Company gave notice of its exercise of its right to convert the 122,000 shares of Preferred Stock into 1,508,964 shares of Public Common Stock (the "Conversion Shares") and the conversion was effective on April 21, 2020. The conversion resulted in dilution of less than 20% of total shares of the Company’s Public Common Stock currently issued and outstanding. A registration statement on Form S-3 (File No. 333-238005) registering the Conversion Shares for resale was filed by us with the SEC on May 5, 2020.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) consisted of the following (in thousands):

	Minimum Pension Liability		Foreign Currency Translation		Foreign Currency Gain on Intra-Entity Transactions		Total Accumulated Other Comprehensive Income
Balances at December 31, 2019	$	(346)	$	859	$	—	$	513
Current period other comprehensive income	—		1,798		5,488		7,286
Balances at September 30, 2020	$	(346)	$	2,657	$	5,488	$	7,799

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Warranties

The Company's current terms and conditions of sale include a limited warranty that its products and services will conform to published specifications at the time of shipment and a more extensive warranty related to certain products. The Company also sells a renewal warranty for certain of its products. The typical remedy for breach of warranty is to correct or replace any defective product, and if not possible or practical, the Company will accept the return of the defective product and refund the amount paid. Historically, the Company has incurred minimal warranty costs. The Company's warranty reserve was $0.6 million and $0.3 million as of September 30, 2020 and December 31, 2019, respectively.

Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of its operations. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred, and the amount can be reasonably estimated.

On February 18, 2020, a former managing director of scil filed a claim disputing the effective date of the termination of his management service agreement and the validity of the Company´s waiver of his two-year post-contractual non-compete obligation. The Company intends to defend itself against the claim. Whether or not this will be successful depends on complex facts and circumstances. The Company is, based on the advice

of its legal counsel, confident that it will be successful in evidencing the effective date of the termination of the management service agreement and as such, no accrual has been recorded for this ongoing litigation. Additionally, we are indemnified by the scil acquisition agreement for this claim.

On October 10, 2018, we reached an agreement in principle to settle the complaint that was filed against the Company by Shaun Fauley on March 12, 2015 in the U.S. District Court Northern District of Illinois (the "Court") alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action (the "Fauley Complaint"). The settlement, which received the Court's approval on February 28, 2019 and was not subsequently appealed by a class member, required us to make available a total of $6.8 million to pay class members, as well as to pay attorneys' fees and expenses to legal counsel to the class. The Company recorded the loss provision in the third quarter of 2018 in connection with the settlement agreement and does not have insurance coverage for the Fauley Complaint. The payment in respect of the settlement was made in full on April 3, 2019, and all activity related to the Fauley Complaint has ceased.

As of September 30, 2020, the Company was not a party to any other legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect on its business, financial condition, or operating results.

Off-Balance Sheet Commitments

We have no off-balance sheet arrangements or variable interest entities.

Purchase Obligations

The Company has contractual obligations with suppliers for unconditional annual minimum inventory purchases in the amounts of $27.8 million as of September 30, 2020.

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INTEREST AND OTHER EXPENSE, NET

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

INTEREST AND OTHER EXPENSE, NET

INTEREST AND OTHER EXPENSE (INCOME), NET

Interest and other expense (income), net, consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income	$	(123)	$	(141)	$	(476)	$	(365)
Interest expense	2,339		494		7,018		718
Other expense (income), net	(205)		574		(189)		579
Total interest and other expense, net	$	2,011	$	927	$	6,353	$	932

Cash paid for interest for the three months ended September 30, 2020 and 2019 was $1.6 million and $224 thousand, respectively. Cash paid for interest for the nine months ended September 30, 2020 and 2019 was $3.2 million and $351 thousand, respectively.

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CONVERTIBLE NOTES AND CREDIT FACILITY

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

CONVERTIBLE NOTES AND CREDIT FACILITY

CONVERTIBLE NOTES AND CREDIT FACILITY

Convertible Notes

On September 17, 2019, the Company issued $86.25 million aggregate principal amount of 3.750% Convertible Senior Notes due 2026 (the "Notes"), which included the exercise in full of

an $11.25 million purchase option, to certain financial institutions as the initial purchasers of the Notes (the "Initial Purchasers"). The Company pays interest on the Notes semiannually in arrears at a rate of 3.750% per annum on March 15 and September 15 of each year. The Notes are senior unsecured obligations of the Company. The Notes were issued pursuant to an Indenture, dated September 17, 2019 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee.

The net proceeds from the sale of the Notes were approximately $83.7 million after deducting the initial purchasers' discounts and the offering expenses payable by the Company. The Company used approximately $12.8 million of the net proceeds from the Notes to repay all outstanding indebtedness on its existing Credit Facility, and an additional $2.0 million to fully fund a cash collateralized letter of credit facility as required under the amendment to the Credit Agreement entered into in September 2019. The Company subsequently terminated the Credit Facility with JPMorgan Chase Bank, N.A. on December 31, 2019. The Company expects to use the remainder of the net proceeds from the sale of the Notes to fund its intended expansion efforts, including through acquisitions of complementary businesses or technologies or other strategic transactions, and for working capital and other general corporate purposes.

Refer to Note 16, Convertible Notes and Credit Facility, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's 2019 Form 10-K for further information on the Notes.

During the three and nine months ended September 30, 2020, the conditions allowing holders of the Notes to convert have not been met. The Notes were therefore not convertible during the three and nine months ended September 30, 2020 and the liability component was classified as long-term debt on the Company's Condensed Consolidated Balance Sheet as of September 30, 2020.

The following table summarizes the net carrying amount of the liability component of the Notes (in thousands):

	September 30, 2020		December 31, 2019
Carrying amount of equity component	$	39,508	$	39,508
Principal amount of the Notes	86,250		86,250
Unamortized debt discount	(36,329)		(40,902)
Net carrying amount	$	49,921	$	45,348

Interest expense related to the Notes for the three and nine months ended September 30, 2020 was $2.3 million and $7.0 million, respectively, which is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest expense related to contractual coupon interest	$	809	$	117	$	2,426	$	117
Interest expense related to amortization of the debt discount	1,524		220		$	4,573	220
	$	2,333	$	337	$	6,999	$	337

As of September 30, 2020, the remaining period over which the unamortized discount will be amortized is 71.5 months.

The estimated fair value of the Notes was $117.7 million and $116.0 million as of September 30, 2020 and December 31, 2019, respectively, determined through consideration of quoted market prices in less active markets. The fair value measurement is classified as Level 2 in the fair value hierarchy, which is defined in ASC 820 as inputs other than quoted prices in active markets that are either directly or indirectly observable. Based on our closing stock price of $98.79 on September 30, 2020, the if-converted value exceeded the aggregate principal amount of the Notes by $12.1 million.

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SEGMENT REPORTING

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

On April 1, 2020, Heska completed the acquisition of scil. Following this acquisition, we restructured our operating segments based on how the Chief Operating Decision Maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The CODM changed how he assesses performance and allocates resources based on geographic regions in order to better align with the global operations of the Company. Based on this change, the Company determined it has two reportable segments and revised prior comparative periods to conform to the current period segment presentation. The Company’s two segments are North America and International.

The North America segment is comprised of our operations in the United States, Canada and Mexico and the International segment is comprised of geographies outside of North America, which are our operations primarily in Australia, France, Germany, Italy, Malaysia, Spain and Switzerland. Certain expenses incurred at the Company’s headquarters located in the North America segment are allocated to each segment in a manner consistent with where the benefits from the expenses are derived. Sales and transfers between operating segments are accounted for at market-based transaction prices and are eliminated in consolidation. The Company's sales are determined by the country of origin where the sale occurred. For a description of Heska's previous operating segments, refer to Note 17 to the consolidated financial statements of Heska's 2019 Annual Report on Form 10-K.

Our CODM continues to evaluate segment performance and allocate resources based on Revenue, Cost of Revenue, Gross Profit, Gross Margin and Operating Income. The CODM does not evaluate operating segments using asset information; however, we have included total asset information by segment below as there was a material change in total assets by segment as of September 30, 2020 due to the acquisition of scil.

Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):

Three Months Ended September 30, 2020	North America			International			Total
Total revenue	$	34,450		$	22,186		$	56,636
Cost of revenue	17,820			15,412			33,232
Gross profit	16,630			6,774			23,404
Gross margin	48		%	31		%	41		%
Operating income (loss)	(10)			213			203

Three Months Ended September 30, 2019	North America			International			Total
Total revenue	$	29,605		$	1,632		$	31,237
Cost of revenue	16,590			983			17,573
Gross profit	13,015			649			13,664
Gross margin	44		%	40		%	44		%
Operating income (loss)	362			(169)			193

Nine Months Ended September 30, 2020	North America			International			Total
Total revenue	$	91,081		$	41,920		$	133,001
Cost of revenue	49,187			29,098			78,285
Gross profit	41,894			12,822			54,716
Gross margin	46		%	31		%	41		%
Operating loss	(7,172)			(1,699)			(8,871)

Nine Months Ended September 30, 2019	North America			International			Total
Total revenue	$	84,492		$	4,402		88,894
Cost of revenue	47,224			3,051			50,275
Gross profit	37,268			1,351			38,619
Gross margin	44		%	31		%	43	%
Operating income (loss)	203			(651)			(448)

Asset information by reportable segment as of September 30, 2020 is as follows (in thousands):

As of September 30, 2020	North America		International		Total
Total assets	$	228,466	$	155,409	$	383,875

Asset information by reportable segment as of December 31, 2019 is as follows (in thousands):

As of December 31, 2019	North America		International		Total
Total assets	$	219,402	$	25,022	$	244,424

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SUBSEQUENT EVENTS	9 Months Ended
	Sep. 30, 2020
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	SUBSEQUENT EVENTSIn October 2020 the Company acquired the remaining 30% minority interest in Optomed for a purchase price of $450 thousand. The Company had previously acquired 70% of the equity of Optomed in February 2019. The purchase allows the Company to assume full control of the business operations.

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OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

The accompanying interim Condensed Consolidated Financial Statements are unaudited. The interim unaudited Condensed Consolidated Financial Statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal, recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2020, and the results of our operations and statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019.

The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. Our unaudited Condensed Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries since their respective dates of acquisitions. All intercompany accounts and transactions have been eliminated in consolidation. Where our ownership of a subsidiary is less than 100%, the non-controlling interest is reported on our Condensed Consolidated Balance Sheets. The non-controlling interest in our consolidated net income is reported as "Net loss attributable to redeemable non-controlling interest" on our Condensed Consolidated Statements of (Loss) Income. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any future period, particularly in light of the COVID-19 pandemic and its effects on the domestic and global economies as described below. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other financial information filed with the SEC.

Beginning in the first quarter of 2020, to limit the spread of COVID-19, governments took various actions including the issuance of stay-at-home policies and social distancing procedures and guidelines, causing some businesses to adjust, reduce or suspend business and operating activities. Veterinary care is widely recognized as an "essential" service for pet owners, and veterinarians continued to deliver essential medical care for sick and injured pets. The stay-at-home policies deployed early in 2020 to combat the spread of COVID-19 resulted in a decrease in companion animal clinical visits, including delay of elective procedures and wellness visits and as a result lowers demand for diagnostic testing services. During the second and third quarters of 2020, certain local, state and federal governments began to ease the stay-at-home policies and allowed more businesses and facilities to re-open, leading to a recovery in companion animal clinical visits and associated demand for our diagnostic products. The extent to which the continuation, or a possible second-wave outbreak of COVID-19, or an outbreak of other health epidemics could impact our business, results of operations and financial condition, including the potential for write-offs or impairments of assets and suspension of capital investments, will depend on future developments. We are unable to predict with certainty the effects of the COVID-19 pandemic on our customers, suppliers and vendors, as well as the actions of governments, and

when and to what extent normal economic and operating conditions can resume; these effects may differ from those assumed in our projected estimates. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic impact that has occurred or may occur in the future.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the net realizable value of inventory; determining future costs associated with warranties provided; determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights; evaluating long-lived and intangible assets and investments for estimated useful lives and impairment; estimating the useful lives of instruments under leasing arrangements; determining the allocation of purchase price under purchase accounting; estimating the expense associated with the granting of stock; determining the need for, and the amount of a valuation allowance on deferred tax assets; determining the value of the non-controlling interest in a business combination; and determining the fair value of the liability component associated with the issuance of convertible debt.

Recent Accounting Pronouncements

Adoption of New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in November 2018. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which further clarifies and improves guidance related to accounting for credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). This ASU provides relief to certain entities adopting ASU 2016-13. The amendment provides entities with an option to irrevocably elect the fair value option for certain financial assets.

The Company adopted ASU 2016-13 with a cumulative-effect adjustment in retained earnings as of January 1, 2020. The impact of the adoption was not material to the Company's consolidated financial statements. We

continuously monitor our customers' credit worthiness and establish allowances for estimated credit losses related to our accounts receivable, net investment in leases, and promissory notes. Our allowances are established based on factors surrounding the credit risk of specific customers, historical experience including collections and write-off history, and current economic conditions. Account balances are considered past due if payments have not been received within agreed upon invoice and/or contract terms and the Company may employ collection agencies and legal counsel to pursue recovery of defaulted amounts. Account balances are written off against the allowance after all collection efforts have been exhausted and it is probable the receivable will not be recovered. The Company also performs a qualitative assessment, on a quarterly basis, to monitor economic factors and other uncertainties that may require additional adjustments for the expected credit loss allowance. The Company will continue to actively monitor the impact of the recent coronavirus ("COVID-19") pandemic on expected credit losses.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740, and also clarifies and amends existing guidance to improve consistent application. This guidance will be effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This guidance will be effective for fiscal years beginning after December 15, 2021. We are currently evaluating the impact of this update on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which simplifies the accounting for certain convertible instruments. The update reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible debt will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The update also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

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REVENUE (Tables)

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

he following table summarizes our segment revenue (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
North America Revenue:
POC Lab Instruments & Other	$	2,458	$	1,916	$	5,772	$	5,222
Sales-type leases	1,310		1,587		3,574		4,821
POC Lab Consumables	16,071		13,953		43,294		39,452
POC Imaging	5,268		4,550		12,912		13,781
PVD	5,437		2,702		14,821		8,093
OVP	3,906		4,897		10,708		13,123
Total North America Revenue	$	34,450	$	29,605	$	91,081	$	84,492
International Revenue:
POC Lab Instruments & Other	$	2,643	$	1	$	4,759	$	17
Sales-type leases	277		—		601		—
POC Lab Consumables	11,387		70		21,418		94
POC Imaging	7,029		785		12,791		2,194
PVD	850		776		2,351		2,097
OVP	—		—		—		—
Total International Revenue	$	22,186	$	1,632	$	41,920	$	4,402
Total Revenue	$	56,636	$	31,237	$	133,001	$	88,894

Schedule of Timing of Revenue Expected to be Recognized

As of September 30, 2020, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2020 (remaining)	$	7,773
2021	30,342
2022	27,155
2023	24,349
2024	20,007
Thereafter	25,843
	$	135,469

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ACQUISITION AND RELATED PARTY ITEMS ACQUISITION AND RELATED PARTY ITEMS (Tables)

9 Months Ended

Sep. 30, 2020

Business Combinations and Related Party Disclosure [Abstract]

Schedule of Business Acquisitions, by Acquisition

The information below represents the preliminary purchase price allocation of scil (in thousands):

	April 1, 2020
Total purchase consideration	$	109,753
Cash and cash equivalents	5,889
Accounts receivable	10,707
Inventories	11,349
Net investment in leases, current	311
Prepaid expenses	1,404
Other current assets	405
Property and equipment, net	19,320
Operating lease right-of-use assets	877
Other intangible assets, net	44,517
Net investment in leases, non-current	1,027
Investments in unconsolidated affiliates	55
Other non-current assets	291
Total assets acquired	96,152
Accounts payable	8,221
Accrued liabilities	6,355
Operating lease liabilities, current	356
Deferred revenue, current, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred tax liability	13,147
Other liabilities	276
Net assets acquired	63,954
Goodwill	45,799
Total fair value of consideration transferred	$	109,753

The preliminary fair values allocated to CVM's assets and liabilities as of the acquisition date, as well as the purchase price, are reflected in the table below (in thousands):

	December 5, 2019
Consideration paid to former owners	$	14,420
Cash and cash equivalents	1,226
Accounts receivable	583
Inventories	1,621
Other current assets	1,186
Property and equipment	345
Other intangible assets	2,608
Other non-current assets	460
Total assets acquired	8,029
Accounts payable	(94)
Accrued liabilities	(471)
Current portion of deferred revenue, and other	(54)
Deferred tax liability	(683)
Other long-term borrowings	(1,109)
Other liabilities	(157)
Net assets acquired	5,461
Goodwill	8,959
Total fair value of consideration transferred	$	14,420

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination

tangible assets acquired, amortization method and estimated useful life as of April 1, 2020, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	10 years	Straight-line	$	36,272
Internally developed software	7 years	Straight-line	353
Backlog	0.2 years	Straight-line	210
Non-compete agreements	2 years	Straight-line	60
Trade name subject to amortization	0.8 years	Straight-line	66
Trademarks and trade names not subject to amortization	n/a	Indefinite	7,556
Total intangible assets acquired			$	44,517

Intangible assets acquired, amortization method and estimated useful life as of December 5, 2019, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Customer relationships	6 years	Straight-line	$	2,440
Trade name	4 years	Straight-line	111
Developed technology	n/a	Indefinite	57
			$	2,608

Business Acquisition, Pro Forma Information

The following tables present unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2019 (in thousands):

	Nine Months Ended September 30, 2020
Revenue, net	$	151,522
Net (loss) income before equity in losses of unconsolidated affiliates	$	(17,733)
Net (loss) income attributable to Heska Corporation	$	(17,680)

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	49,346	$	144,372
Net (loss) income before equity in losses of unconsolidated affiliates	$	(451)	$	(1,407)
Net (loss) income attributable to Heska Corporation	$	(557)	$	(1,730)

The following table presents unaudited supplemental pro forma financial information as if the CVM acquisition had occurred on January 1, 2019 (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	32,910	$	94,462
Net (loss) income before equity in losses of unconsolidated affiliates	$	164	$	789
Net (loss) income attributable to Heska Corporation	$	58	$	466

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Tables)

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Carrying values of investments in unconsolidated entities

The carrying values of investments in unconsolidated affiliates, categorized by type of investment, is as follows (in thousands):

	September 30, 2020		December 31, 2019
Equity method investment	$	4,167	$	4,406
Non-marketable equity security investment	3,018		3,018
	$	7,185	$	7,424

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Schedule of components of income tax expense

Our total income tax expense/(benefit) for our loss before income taxes were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,808)	$	(734)	$	(15,224)	$	(1,380)
Total income tax expense (benefit)	$	3,413	$	(530)	$	1,693	$	(1,966)

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LEASES (Tables)

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Assets and Liabilities, Lessee

The following table summarizes the Company's operating and finance lease balances (in thousands):

Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use assets	$	5,804	$	5,726
Finance	Property and equipment, net	1,824		81
Total Leased Assets		$	7,628	$	5,807
Liabilities
Operating	Operating lease liabilities, current	$	2,099	$	1,745
	Operating lease liabilities, non-current	4,177		4,413
Finance	Deferred revenue, current, and other	291		47
	Other liabilities	283		37
Total Lease Liabilities		$	6,850	$	6,242

Additional lease information

Supplemental cash flow information related to the Company's operating and finance leases for the nine months ended September 30, 2020 and 2019, respectively, was as follows (in thousands):

	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - operating leases	$	1,617	$	1,344
Operating cash outflows - finance leases	$	6	$	2
Financing cash outflows - finance leases	$	166	$	25
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	636	$	498
Finance leases	$	120	$	10

The following table presents the weighted average remaining lease term and weighted average discount rate related to the Company's leases:

	September 30, 2020		December 31, 2019
Weighted average remaining lease term:
Operating	3.3 years		3.8 years
Finance	3.0 years		2.0 years
Weighted average discount rate:
Operating	4.2	%	4.4	%
Finance	2.2	%	4.0	%

Schedule of maturity of operating leases

The following table presents the maturity of the Company's lease liabilities as of September 30, 2020 (in thousands):

Year Ending December 31,	Operating Leases		Finance Leases
Remainder of 2020	$	817	$	80
2021	1,932		265
2022	1,678		121
2023	1,893		47
2024	128		37
Thereafter	260		43
Total lease payments	6,708		593
Less: imputed interest	432		19
Total lease liabilities	$	6,276	$	574

Lessor, maturity of undiscounted lease receivables

The following table presents the maturity of the Company's lease receivables as of September 30, 2020 (in thousands):

Year Ending December 31,
Remainder of 2020	$	1,192
2021	4,915
2022	4,643
2023	3,929
2024	2,960
Thereafter	2,733
Total undiscounted future maturities	20,372
Less: interest	119
Total lease receivables	$	20,253

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Reconciliation of basic and diluted earnings per share

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share ("EPS") for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income attributable to Heska Corporation	$	(5,219)	$	(310)	$	(16,864)	$	263
Basic weighted-average common shares outstanding	9,123		7,501		8,486		7,461
Assumed exercise of dilutive stock options and restricted shares	—		—		—		499
Diluted weighted-average common shares outstanding	$	9,123	$	7,501	$	8,486	$	7,960
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.04
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.57)	$	(0.04)	$	(1.99)	$	0.03

Schedule of antidilutive securities excluded from computation of earnings per share

otentially outstanding common shares from convertible preferred stock, convertible senior notes, stock options and restricted stock awards were excluded from the computation of diluted EPS because the effect would have been antidilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Convertible preferred stock	—	—	611	—
Convertible senior notes	123	—	56	—
Stock options and restricted stock	312	273	329	272
	435	273	996	272

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GOODWILL AND OTHER INTANGIBLES (Tables)

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The following summarizes the change in goodwill during the nine months ended September 30, 2020 (in thousands):

Carrying amount, December 31, 2019	$	36,204
Goodwill attributable to acquisitions	45,909
Foreign currency adjustments	3,189
Carrying amount, September 30, 2020	$	85,302

Schedule of other intangible assets

Other intangibles consisted of the following (in thousands):

	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount		Gross Carrying Amount		Accum. Amortiz.		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships and other	$	45,053	$	(5,067)	$	39,986	$	6,205	$	(2,226)	$	3,979
Developed technology	8,648		(1,458)		7,190		8,200		(819)		7,381
Trade names	188		(76)		112		112		—		112
Intangible assets not subject to amortization:
Trade names	8,007		—		8,007		—		—		—
Total intangible assets	$	61,896	$	(6,601)	$	55,295	$	14,517	$	(3,045)	$	11,472

Schedule of amortization expense on intangible assets

Amortization expense relating to other intangibles was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization expense	$	1,502	$	346	$	3,556	$	953

Schedule of estimated future amortization expense

Estimated amortization expense related to intangibles for each of the five years from 2020 (remaining) through 2024 and thereafter is as follows (in thousands):

Year Ending December 31,
2020 (remaining)	$	1,456
2021	5,696
2022	5,661
2023	5,300
2024	5,174
Thereafter	24,001
Total amortization related to finite-lived intangible assets	$	47,288
Indefinite-lived intangible assets	8,007
Net intangible assets	$	55,295

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PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

Property and equipment, net, consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Land	$	2,460	$	694
Building	12,254		3,845
Machinery and equipment	38,811		28,777
Office furniture and equipment	2,004		1,345
Computer hardware and software	4,631		3,408
Leasehold and building improvements	10,696		10,558
Construction in progress	40		671
Property and equipment, gross	70,896		49,298
Less accumulated depreciation	(35,899)		(33,829)
Total property and equipment, net	$	34,997	$	15,469

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INVENTORIES, NET (Tables)

9 Months Ended

Sep. 30, 2020

Inventory Disclosure [Abstract]

Schedule of inventory

Inventories consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Raw materials	$	12,201	$	14,597
Work in process	4,653		2,730
Finished goods	22,494		9,274
Total inventories	$	39,348	$	26,601

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ACCRUED LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2020

Payables and Accruals [Abstract]

Schedule of accrued liabilities

Accrued liabilities consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Accrued payroll and employee benefits	$	5,792	$	1,175
Accrued property taxes	500		681
Accrued purchase orders	1,965		739
Accrued taxes	2,046		586
Other	2,987		3,164
Total accrued liabilities	$	13,290	$	6,345

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CAPITAL STOCK (Tables)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Schedule of stock options plans

During the nine months ended September 30, 2020, the Company granted the following stock options and restricted stock awards:

	Nine Months Ended September 30, 2020
	Options/Awards Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	323,250	$	25.97
Restricted stock awards	65,284	$	83.35

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Schedule of accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) consisted of the following (in thousands):

	Minimum Pension Liability		Foreign Currency Translation		Foreign Currency Gain on Intra-Entity Transactions		Total Accumulated Other Comprehensive Income
Balances at December 31, 2019	$	(346)	$	859	$	—	$	513
Current period other comprehensive income	—		1,798		5,488		7,286
Balances at September 30, 2020	$	(346)	$	2,657	$	5,488	$	7,799

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INTEREST AND OTHER EXPENSE, NET (Tables)

9 Months Ended

Sep. 30, 2020

Other Income and Expenses [Abstract]

Schedule of interest expense (income) and other income, net

Interest and other expense (income), net, consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income	$	(123)	$	(141)	$	(476)	$	(365)
Interest expense	2,339		494		7,018		718
Other expense (income), net	(205)		574		(189)		579
Total interest and other expense, net	$	2,011	$	927	$	6,353	$	932

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CONVERTIBLE NOTES AND CREDIT FACILITY (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Convertible Debt

	September 30, 2020		December 31, 2019
Carrying amount of equity component	$	39,508	$	39,508
Principal amount of the Notes	86,250		86,250
Unamortized debt discount	(36,329)		(40,902)
Net carrying amount	$	49,921	$	45,348

Interest Income and Interest Expense Disclosure

Interest expense related to the Notes for the three and nine months ended September 30, 2020 was $2.3 million and $7.0 million, respectively, which is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest expense related to contractual coupon interest	$	809	$	117	$	2,426	$	117
Interest expense related to amortization of the debt discount	1,524		220		$	4,573	220
	$	2,333	$	337	$	6,999	$	337

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SEGMENT REPORTING (Tables)

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Reconciliation of Revenue from Segments to Consolidated

Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):

Three Months Ended September 30, 2020	North America			International			Total
Total revenue	$	34,450		$	22,186		$	56,636
Cost of revenue	17,820			15,412			33,232
Gross profit	16,630			6,774			23,404
Gross margin	48		%	31		%	41		%
Operating income (loss)	(10)			213			203

Three Months Ended September 30, 2019	North America			International			Total
Total revenue	$	29,605		$	1,632		$	31,237
Cost of revenue	16,590			983			17,573
Gross profit	13,015			649			13,664
Gross margin	44		%	40		%	44		%
Operating income (loss)	362			(169)			193

Nine Months Ended September 30, 2020	North America			International			Total
Total revenue	$	91,081		$	41,920		$	133,001
Cost of revenue	49,187			29,098			78,285
Gross profit	41,894			12,822			54,716
Gross margin	46		%	31		%	41		%
Operating loss	(7,172)			(1,699)			(8,871)

Nine Months Ended September 30, 2019	North America			International			Total
Total revenue	$	84,492		$	4,402		88,894
Cost of revenue	47,224			3,051			50,275
Gross profit	37,268			1,351			38,619
Gross margin	44		%	31		%	43	%
Operating income (loss)	203			(651)			(448)

Schedule of revenue from external customers and long-lived assets, by geographical areas

Asset information by reportable segment as of September 30, 2020 is as follows (in thousands):

As of September 30, 2020	North America		International		Total
Total assets	$	228,466	$	155,409	$	383,875

Asset information by reportable segment as of December 31, 2019 is as follows (in thousands):

As of December 31, 2019	North America		International		Total
Total assets	$	219,402	$	25,022	$	244,424

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REVENUE (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) segment	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Number of reportable segments | segment			2
Revenue, net	$ 56,636	$ 31,237	$ 133,001	$ 88,894
Contract receivables, current	1,300		1,300		$ 1,100
Contract receivables, noncurrent	4,000		4,000		3,700
Current portion of deferred revenue, and other	8,200		8,200		$ 8,700
Contract liabilities, revenue recognized			3,400
Contract liabilities, increase due to additional deferred sales			2,300
Scil Animal Care Company
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contract with customer, liability	600		600
North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	34,450	29,605	91,081	84,492
International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	22,186	1,632	41,920	4,402
POC Lab Instruments & Other | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	2,458	1,916	5,772	5,222
POC Lab Instruments & Other | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	2,643	1	4,759	17
Sales-type leases | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	1,310	1,587	3,574	4,821
Sales-type leases | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	277	0	601	0
POC Lab Consumables | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	16,071	13,953	43,294	39,452
POC Lab Consumables | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	11,387	70	21,418	94
POC Imaging | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	5,268	4,550	12,912	13,781
POC Imaging | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	7,029	785	12,791	2,194
PVD | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	5,437	2,702	14,821	8,093
PVD | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	850	776	2,351	2,097
OVP | North America
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	3,906	4,897	10,708	13,123
OVP | International
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	$ 0	$ 0	$ 0	$ 0

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REVENUE - Performance Obligations (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 135,469
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 7,773
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 30,342
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 27,155
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 24,349
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 20,007
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 25,843
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction

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ACQUISITION AND RELATED PARTY ITEMS - Additional Information (Details)			1 Months Ended	3 Months Ended		6 Months Ended	9 Months Ended
	Apr. 01, 2020 USD ($)	Dec. 05, 2019 USD ($)	Dec. 31, 2019 USD ($)	Sep. 30, 2020 USD ($) segment	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) segment	Sep. 30, 2020 USD ($) segment	Sep. 30, 2019 USD ($)
Business Acquisition [Line Items]
Goodwill			$ 36,204,000	$ 85,302,000		$ 85,302,000	$ 85,302,000
Unrecognized tax benefits, period increase (decrease)							1,000,000.0
Goodwill, period increase (decrease)							110,000
Related party loan			0	1,186,000		1,186,000	1,186,000
Operating cash outflows - operating leases							1,617,000	$ 1,344,000
Operating lease right-of-use assets			5,726,000	5,804,000		5,804,000	5,804,000
Total lease liabilities				$ 6,276,000		$ 6,276,000	$ 6,276,000
CVM Practice | Affiliated Entity
Business Acquisition [Line Items]
Number of warehouses | segment				2		2	2
Number of loans | segment				2		2	2
Operating cash outflows - operating leases							$ 23,000	0
Operating lease right-of-use assets			0	$ 169,000		$ 169,000	169,000
Total lease liabilities			0	169,000		169,000	169,000
Accounts payable, related parties			0	1,200,000		1,200,000	1,200,000
Cuattro, LLC | Heska Imaging | Affiliated Entity
Business Acquisition [Line Items]
Related party - amount of transaction							0	6,000
Heska Imaging | Affiliated Entity
Business Acquisition [Line Items]
Related party loan			0	0		0	0
Scil Animal Care Company
Business Acquisition [Line Items]
Percentage of voting interest acquired	100.00%
Cash consideration transferred	$ 111,000,000.0
Purchase price	109,753,000
Goodwill	45,799,000
Revenue of acquiree since acquisition date						37,700,000
Net income of acquiree since acquisition date						$ 200,000
Acquisition related costs				700,000			5,700,000
Revenue, net					$ 49,346,000		151,522,000	144,372,000
Net (loss) income attributable to Heska Corporation					(557,000)		(17,680,000)	(1,730,000)
Scil Animal Care Company | International
Business Acquisition [Line Items]
Goodwill	37,300,000
Scil Animal Care Company | North America
Business Acquisition [Line Items]
Goodwill	$ 8,500,000
CVM
Business Acquisition [Line Items]
Percentage of voting interest acquired		100.00%
Purchase price		$ 14,400,000
Goodwill		8,959,000
Equity interest issued and issuable		$ 9,000,000.0
Revenue of acquiree since acquisition date			800,000	2,200,000			5,200,000
Net income of acquiree since acquisition date			$ 100,000	300,000			400,000
Acquisition related costs				$ 44,000			$ 300,000
Revenue, net					32,910,000			94,462,000
Net (loss) income attributable to Heska Corporation					$ 58,000			$ 466,000

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ACQUISITION AND RELATED PARTY ITEMS - Fair Values of Assets and Liabilties at Scil Acquisition Date (Details) - USD ($) $ in Thousands	Apr. 01, 2020	Sep. 30, 2020	Dec. 31, 2019
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Goodwill		$ 85,302	$ 36,204
Scil Animal Care Company
Business Combination, Consideration Transferred, Including Equity Interest in Acquiree Held Prior to Combination [Abstract]
Total fair value of consideration transferred	$ 109,753
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Cash and cash equivalents	5,889
Accounts receivable	10,707
Inventories	11,349
Net investment in leases, current	311
Prepaid expenses	1,404
Other current assets	405
Property and equipment	19,320
Operating lease right-of-use assets	877
Other intangible assets	44,517
Net investment in leases, non-current	1,027
Investments in unconsolidated affiliates	55
Other non-current assets	291
Total assets acquired	96,152
Accounts payable	8,221
Accrued liabilities	6,355
Operating lease liabilities, current	356
Current portion of deferred revenue, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred tax liability	13,147
Other liabilities	276
Net assets acquired	63,954
Goodwill	45,799
Total fair value of consideration transferred	$ 109,753

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ACQUISITION AND RELATED PARTY ITEMS - Fair Value of Assets and Liabilities at CVM Acquisition Date (Details) - USD ($) $ in Thousands	Dec. 05, 2019	Sep. 30, 2020	Dec. 31, 2019
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Goodwill		$ 85,302	$ 36,204
CVM
Business Combination, Consideration Transferred, Including Equity Interest in Acquiree Held Prior to Combination [Abstract]
Consideration paid to former owners	$ 14,420
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Cash and cash equivalents	1,226
Accounts receivable	583
Inventories	1,621
Other current assets	1,186
Property and equipment	345
Other intangible assets	2,608
Other non-current assets	460
Total assets acquired	8,029
Accounts payable	(94)
Accrued liabilities	(471)
Current portion of deferred revenue, and other	(54)
Deferred tax liability	(683)
Other long-term borrowings	(1,109)
Other liabilities	(157)
Net assets acquired	5,461
Goodwill	8,959
Total fair value of consideration transferred	$ 14,420

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ACQUISITION AND RELATED PARTY ITEMS - Intangible Assets Acquired, Amortization Method (Details) - USD ($) $ in Thousands			9 Months Ended
	Apr. 01, 2020	Dec. 05, 2019	Sep. 30, 2020	Dec. 31, 2019
Business Acquisition [Line Items]
Gross Carrying Amount			$ 61,896	$ 14,517
Scil Animal Care Company
Business Acquisition [Line Items]
Gross Carrying Amount	$ 44,517
Scil Animal Care Company | Trade names
Business Acquisition [Line Items]
Finite-lived intangible assets acquired	$ 7,556
CVM
Business Acquisition [Line Items]
Gross Carrying Amount			2,608
CVM | Developed technology
Business Acquisition [Line Items]
Indefinite-lived intangible assets acquired			$ 57
Customer relationships | Scil Animal Care Company
Business Acquisition [Line Items]
Useful Life	10 years
Finite-lived intangible assets acquired	$ 36,272
Customer relationships | CVM
Business Acquisition [Line Items]
Useful Life		6 years
Finite-lived intangible assets acquired		$ 2,440
Internally developed software | Scil Animal Care Company
Business Acquisition [Line Items]
Useful Life	7 years
Finite-lived intangible assets acquired	$ 353
Backlog | Scil Animal Care Company
Business Acquisition [Line Items]
Useful Life	2 months 12 days
Finite-lived intangible assets acquired	$ 210
Non-compete agreements | Scil Animal Care Company
Business Acquisition [Line Items]
Useful Life	2 years
Finite-lived intangible assets acquired	$ 60
Trade names | Scil Animal Care Company
Business Acquisition [Line Items]
Useful Life	9 months 18 days
Finite-lived intangible assets acquired	$ 66
Trade names | CVM
Business Acquisition [Line Items]
Useful Life		4 years
Finite-lived intangible assets acquired		$ 111

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ACQUISITION AND RELATED PARTY ITEMS - Unaudited Pro Forma Financial Information (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Scil Animal Care Company
Business Acquisition [Line Items]
Revenue, net	$ 49,346	$ 151,522	$ 144,372
Net (loss) income before equity in losses of unconsolidated affiliates	(451)	(17,733)	(1,407)
Net (loss) income attributable to Heska Corporation	(557)	$ (17,680)	(1,730)
CVM
Business Acquisition [Line Items]
Revenue, net	32,910		94,462
Net (loss) income before equity in losses of unconsolidated affiliates	164		789
Net (loss) income attributable to Heska Corporation	$ 58		$ 466

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Details) - USD ($) $ in Thousands	Sep. 24, 2018	Aug. 08, 2018	Sep. 30, 2020	Dec. 31, 2019
Schedule of Equity Method Investments [Line Items]
Equity method investment			$ 4,167	$ 4,406
Non-marketable equity security investment			3,018	3,018
Investments			$ 7,185	$ 7,424
General Fluidics Corporation
Schedule of Equity Method Investments [Line Items]
Supply commitment term	15 years
General Fluidics Corporation
Schedule of Equity Method Investments [Line Items]
Payments to acquire equity method investments	$ 5,100
Ownership percentage			29.10%
MBio Diagnostics, Inc.
Schedule of Equity Method Investments [Line Items]
Payments to acquire non-marketable securities		$ 3,000
Intangible asset acquired		$ 1,000
Intangible assets acquired, useful life		20 years
Contingent consideration on milestones		$ 10,000

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Income before income taxes	$ (1,808)	$ (734)	$ (15,224)	$ (1,380)
Total income tax expense (benefit)	3,413	(530)	1,693	(1,966)
Cash paid for income taxes	500	1	800
Excess tax benefits related to employee share-based compensation	$ 100	$ 100	500	$ 1,500
Valuation allowance, deferred tax asset, increase (decrease)			$ 3,600

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LEASES - Operating and Financing Lease Balances (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Operating lease right-of-use assets	$ 5,804	$ 5,726
Property and equipment, net	1,824	81
Total Leased Assets	7,628	5,807
Operating lease liabilities, current	2,099	1,745
Operating lease liabilities, non-current	4,177	4,413
Deferred revenue, current, and other	291	47
Other liabilities	283	37
Total Lease Liabilities	$ 6,850	$ 6,242

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LEASES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Leases [Abstract]
Operating lease, expense	$ 700	$ 600	$ 2,000	$ 1,800
Finance lease amortization expense	100	18	200	32
Finance lease, interest expense	$ 4	$ 2	$ 7	$ 2

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LEASES - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows - operating leases	$ 1,617	$ 1,344
Operating cash outflows - finance leases	6	2
Financing cash outflows - finance leases	166	25
ROU assets obtained in exchange for new lease obligations:
Operating leases	636	498
Finance leases	$ 120	$ 10

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LEASES - Weighted Average Remaining Lease Term and Weighted Average Discount Rate (Details)	Sep. 30, 2020	Dec. 31, 2019
Weighted average remaining lease term:
Operating	3 years 3 months 18 days	3 years 9 months 18 days
Finance	3 years	2 years
Weighted average discount rate:
Operating	4.20%	4.40%
Finance	2.20%	4.00%

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LEASES - Lessee Accounting (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Operating Leases
Remainder of 2020	$ 817
2021	1,932
2022	1,678
2023	1,893
2024	128
Thereafter	260
Total lease payments	6,708
Less: imputed interest	432
Total lease liabilities	6,276
Finance Leases
Remainder of 2020	80
2021	265
2022	121
2023	47
2024	37
Thereafter	43
Total lease payments	593
Less: imputed interest	19
Total lease liabilities	$ 574

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LEASES - Lessor Accounting (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Lessor, Operating Lease, Payments, Fiscal Year Maturity [Abstract]
Remainder of 2020	$ 1,192
2021	4,915
2022	4,643
2023	3,929
2024	2,960
Thereafter	2,733
Lessor, operating lease, payments to be received	20,372
Less: interest	119
Total lease receivables	$ 20,253

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Apr. 14, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 17, 2019
Earnings Per Share [Abstract]
Net (loss) income attributable to Heska Corporation		$ (5,219)	$ (310)	$ (16,864)	$ 263
Basic weighted-average common shares outstanding (in shares)		9,123,000	7,501,000	8,486,000	7,461,000
Assumed exercise of dilutive stock options and restricted shares		0	0	0	499,000
Diluted weighted-average common shares outstanding		9,123,000	7,501,000	8,486,000	7,960,000
Basic (loss) earnings per share attributable to Heska Corporation (in dollars per share)		$ (0.57)	$ (0.04)	$ (1.99)	$ 0.04
Diluted (loss) earnings per share attributable to Heska Corporation (in dollars per share)		$ (0.57)	$ (0.04)	$ (1.99)	$ 0.03
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and restricted units excluded from computation of earnings per share		435,000	273,000	996,000	272,000
Series X Convertible Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Conversion of convertible securities (in shares)	122,000
Traditional Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Conversion of convertible securities (in shares)	1,508,964
Convertible Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and restricted units excluded from computation of earnings per share		0	0	611,000	0
Senior Convertible Note
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and restricted units excluded from computation of earnings per share		123,000	0	56,000	0
Stock Options And Restricted Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and restricted units excluded from computation of earnings per share		312,000	273,000	329,000	272,000
Senior Convertible Note | Convertible Debt
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Conversion price (in dollars per share)						$ 86.63

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GOODWILL AND OTHER INTANGIBLES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Goodwill [Roll Forward]
Carrying amount, December 31, 2019			$ 36,204
Goodwill attributable to acquisitions			45,909
Foreign currency adjustments			3,189
Carrying amount, September 30, 2020	$ 85,302		85,302
Finite-Lived Intangible Assets, Net [Abstract]
Accumulated amortization	(6,601)		(6,601)		$ (3,045)
Net carrying amount	47,288		47,288
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	8,007		8,007
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	61,896		61,896		14,517
Accumulated amortization	(6,601)		(6,601)		(3,045)
Net intangible assets	55,295		55,295		11,472
Amortization expense	1,502	$ 346	3,556	$ 953
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2020 (remaining)	1,456		1,456
2021	5,696		5,696
2022	5,661		5,661
2023	5,300		5,300
2024	5,174		5,174
Thereafter	24,001		24,001
Net carrying amount	47,288		47,288
Indefinite-lived intangible assets	8,007		8,007
Net intangible assets	55,295		55,295		11,472
Trade names
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	8,007		8,007		0
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Indefinite-lived intangible assets	8,007		8,007		0
Customer relationships and other
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	45,053		45,053		6,205
Accumulated amortization	(5,067)		(5,067)		(2,226)
Net carrying amount	39,986		39,986		3,979
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(5,067)		(5,067)		(2,226)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	39,986		39,986		3,979
Developed technology
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	8,648		8,648		8,200
Accumulated amortization	(1,458)		(1,458)		(819)
Net carrying amount	7,190		7,190		7,381
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(1,458)		(1,458)		(819)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	7,190		7,190		7,381
Trade names
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	188		188		112
Accumulated amortization	(76)		(76)		0
Net carrying amount	112		112		112
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(76)		(76)		0
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	$ 112		$ 112		$ 112

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 70,896		$ 70,896		$ 49,298
Less accumulated depreciation	(35,899)		(35,899)		(33,829)
Total property and equipment, net	34,997		34,997		15,469
Depreciation and amortization	1,700	$ 900	4,300	$ 2,800
Land
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,460		2,460		694
Building
Property, Plant and Equipment [Line Items]
Property and equipment, gross	12,254		12,254		3,845
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	38,811		38,811		28,777
Office furniture and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,004		2,004		1,345
Computer hardware and software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	4,631		4,631		3,408
Leasehold and building improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	10,696		10,696		10,558
Construction in progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	40		$ 40		671
Machinery and equipment | Minimum
Property, Plant and Equipment [Line Items]
Property plant and equipment, useful life			5 years
Machinery and equipment | Maximum
Property, Plant and Equipment [Line Items]
Property plant and equipment, useful life			7 years
Leased equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	8,500		$ 8,500		8,100
Less accumulated depreciation	$ (4,000)		$ (4,000)		$ (4,600)

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INVENTORIES, NET (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 12,201	$ 14,597
Work in process	4,653	2,730
Finished goods	22,494	9,274
Total inventory, net	$ 39,348	$ 26,601

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ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Payables and Accruals [Abstract]
Accrued payroll and employee benefits	$ 5,792	$ 1,175
Accrued property taxes	500	681
Accrued purchase orders	1,965	739
Accrued taxes	2,046	586
Other	2,987	3,164
Total accrued liabilities	$ 13,290	$ 6,345
Percentage of total current liabilities	5.00%

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CAPITAL STOCK - STOCK OPTIONS AND RESTRICTED STOCK (Details)	9 Months Ended
	Sep. 30, 2020 $ / shares shares
Options/Awards Granted
Stock options (in shares) | shares	323,250
Restricted stock awards (in shares) | shares	65,284,000
Weighted-Average Grant Date Fair Value (per option/award)
Stock options (in dollars per share) | $ / shares	$ 25.97
Restricted stock awards (in dollars per share) | $ / shares	$ 83.35

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	$ 154,364
Ending balance	274,882
Total Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	513
Current period other comprehensive income	7,286
Ending balance	7,799
Minimum Pension Liability
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	(346)
Current period other comprehensive income	0
Ending balance	(346)
Foreign Currency Translation
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	859
Current period other comprehensive income	1,798
Ending balance	2,657
Foreign Currency Gain on Intra-Entity Transactions
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	0
Current period other comprehensive income	5,488
Ending balance	$ 5,488

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions	Feb. 28, 2019	Sep. 30, 2020	Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
Warranty reserve		$ 0.6	$ 0.3
Litigation settlement, amount	$ 6.8
Unconditional annual minimum inventory purchases		$ 27.8

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INTEREST AND OTHER EXPENSE, NET (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Other Income and Expenses [Abstract]
Interest income	$ (123)	$ (141)	$ (476)	$ (365)
Interest expense	2,339	494	7,018	718
Other, net	(205)	574	(189)	579
Total interest and other expense, net	2,011	927	6,353	932
Cash paid for interest	$ 1,600	$ 224	$ 3,200	$ 351

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CONVERTIBLE NOTES AND CREDIT FACILITY - Convertible Notes Narrative (Details)		3 Months Ended		9 Months Ended
	Sep. 17, 2019 USD ($) $ / shares	Sep. 30, 2020 USD ($) $ / shares	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) $ / shares	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Proceeds from convertible debt				$ 0	$ 86,250,000
Interest expense, debt		$ 2,300,000		$ 7,000,000.0
Debt instrument, convertible, remaining discount amortization period				71 months 15 days
Share price | $ / shares		$ 98.79		$ 98.79
Senior Convertible Note
Debt Instrument [Line Items]
Proceeds from convertible debt	$ 83,700,000
Debt instrument, convertible, conversion ratio	0.0115434
Debt instrument, convertible, if-converted value in excess of principal				$ 12,100,000
Convertible Debt | Senior Convertible Note
Debt Instrument [Line Items]
Aggregate principal amount	$ 86,250,000	$ 86,250,000		86,250,000		$ 86,250,000
Debt instrument, interest rate, stated percentage	3.75%
Conversion price (in dollars per share) | $ / shares	$ 86.63
Interest expense, debt		2,333,000	$ 337,000	6,999,000	$ 337,000
Carrying amount of equity component		39,508,000		39,508,000		39,508,000
Fair Value, Inputs, Level 2 | Senior Convertible Note
Debt Instrument [Line Items]
Convertible debt, fair value		$ 117,700,000		$ 117,700,000		$ 116,000,000.0
Initial Purchasers | Convertible Debt | Senior Convertible Note
Debt Instrument [Line Items]
Aggregate principal amount	$ 11,250,000

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CONVERTIBLE NOTES AND CREDIT FACILITY - Carrying Amount of Debt (Details) - Convertible Debt - Senior Convertible Note - USD ($)	Sep. 30, 2020	Dec. 31, 2019	Sep. 17, 2019
Debt Instrument [Line Items]
Carrying amount of equity component	$ 39,508,000	$ 39,508,000
Aggregate principal amount	86,250,000	86,250,000	$ 86,250,000
Unamortized debt discount	(36,329,000)	(40,902,000)
Net carrying amount	$ 49,921,000	$ 45,348,000

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CONVERTIBLE NOTES AND CREDIT FACILITY - Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Debt Instrument [Line Items]
Interest expense, debt	$ 2,300		$ 7,000
Convertible Debt | Senior Convertible Note
Debt Instrument [Line Items]
Interest expense related to contractual coupon interest	809	$ 117	2,426	$ 117
Interest expense related to amortization of the debt discount	1,524	220	4,573	220
Interest expense, debt	$ 2,333	$ 337	$ 6,999	$ 337

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CONVERTIBLE NOTES AND CREDIT FACILITY - Credit Facility Narrative (Details) - Line of Credit $ in Millions	9 Months Ended
	Sep. 30, 2020 USD ($)
Revolving Credit Facility
Debt Instrument [Line Items]
Repayments of debt	$ 12.8
Letter of Credit
Debt Instrument [Line Items]
Collateral amount	$ 2.0

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SEGMENT REPORTING - NARRATIVE (Details)	9 Months Ended
	Sep. 30, 2020 segment
Segment Reporting [Abstract]
Number of reportable segments	2

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SEGMENT REPORTING (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	$ 56,636	$ 31,237	$ 133,001	$ 88,894
Cost of revenue	33,232	17,573	78,285	50,275
Gross profit	$ 23,404	$ 13,664	$ 54,716	$ 38,619
Gross margin	41.00%	44.00%	41.00%	43.00%
Operating income (loss)	$ 203	$ 193	$ (8,871)	$ (448)
Total assets	383,875		383,875		$ 244,424
North America
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	34,450	29,605	91,081	84,492
Cost of revenue	17,820	16,590	49,187	47,224
Gross profit	$ 16,630	$ 13,015	$ 41,894	$ 37,268
Gross margin	48.00%	44.00%	46.00%	44.00%
Operating income (loss)	$ (10)	$ 362	$ (7,172)	$ 203
Total assets	228,466		228,466		219,402
International
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	22,186	1,632	41,920	4,402
Cost of revenue	15,412	983	29,098	3,051
Gross profit	$ 6,774	$ 649	$ 12,822	$ 1,351
Gross margin	31.00%	40.00%	31.00%	31.00%
Operating income (loss)	$ 213	$ (169)	$ (1,699)	$ (651)
Total assets	$ 155,409		$ 155,409		$ 25,022

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Subsequent Events (Details) - Optomed - USD ($) $ in Thousands	1 Months Ended
	Oct. 31, 2020	Oct. 20, 2020	Feb. 28, 2019
Subsequent Event [Line Items]
Percentage of voting interest acquired		30.00%	70.00%
Total fair value of consideration transferred	$ 450