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 June 30, 2021

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 ☒

10,645,363 shares of the Registrant's Public Common Stock, $0.01 par value, were outstanding at August 2, 2021.

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 Income (Loss)	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	11
		Note 4, Investments in Unconsolidated Affiliates	15
		Note 5, Income Taxes	16
		Note 6, Leases	17
		Note 7, Earnings Per Share	18
		Note 8, Goodwill and Other Intangibles	19
		Note 9, Property and Equipment, Net	20
		Note 10, Inventories	20
		Note 11, Accrued Liabilities	21
		Note 12, Capital Stock	21
		Note 13, Accumulated Other Comprehensive Income	22
		Note 14, Commitments and Contingencies	22
		Note 15, Interest and Other Expense, Net	23
		Note 16, Convertible Notes	23
		Note 17, Notes Receivable	25
		Note 18, Segment Reporting	26
		Note 19, 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	42
	Item 4.	Controls and Procedures	42
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 6.	Exhibits	43
		Signatures	46

HESKA, scil, ALLERCEPT, HemaTrue, Solo Step, Element DC, Element HT5, Element POC, Element i, Element i+, Element COAG, Element DC5X and Element RC, Element RCX, Element RCX3 and scil vet, scil academy, scil vIP, scil ABC are registered trademarks of Heska Corporation and/or its affiliates. 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.

-i-

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.

-ii-

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 for the year ended December 31, 2020, 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 dependence on third parties to successfully develop new products;

•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;

•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)

	June 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	245,153	$	86,334
Accounts receivable, net of allowance for losses of $798 and $769, respectively	27,887		31,080
Inventories	41,204		40,037
Net investment in leases, current, net of allowance for losses of $136 and $192, respectively	5,394		4,794
Prepaid expenses	5,517		3,875
Other current assets	5,688		5,155
Total current assets	330,843		171,275
Property and equipment, net	34,296		35,542
Operating lease right-of-use assets	4,944		5,457
Goodwill	90,771		88,276
Other intangible assets, net	52,898		55,992
Deferred tax asset, net	17,845		5,694
Net investment in leases, non-current	17,384		15,789
Investments in unconsolidated affiliates	6,175		6,704
Related party convertible note receivable, net	6,776		6,671
Promissory note receivable from investee, net	8,846		—
Other non-current assets	8,588		8,439
Total assets	$	579,366	$	399,839
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,581	$	15,119
Accrued liabilities	17,368		18,055
Operating lease liabilities, current	2,035		2,087
Deferred revenue, current, and other	7,497		6,854
Total current liabilities	41,481		42,115
Convertible note, non-current, net	83,824		48,459
Deferred revenue, non-current	4,074		4,667
Other long-term borrowings	119		554
Operating lease liabilities, non-current	3,404		3,858
Deferred tax liability	11,583		11,856
Other liabilities	1,115		1,277
Total liabilities	145,600		112,786
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding	—		—
Common stock, $.01 par value, 13,250,000 shares authorized, respectively, none issued or outstanding	—		—
Public common stock, $.01 par value, 13,250,000 shares authorized, 10,645,730 and 9,475,845 shares issued and outstanding, respectively	106		95
Additional paid-in capital	569,214		423,650
Accumulated other comprehensive income	10,638		14,169
Accumulated deficit	(146,192)		(150,861)
Total stockholders' equity	433,766		287,053
Total liabilities and stockholders' equity	$	579,366	$	399,839

See accompanying notes to condensed consolidated financial statements.

-1-

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue, net	$	64,928	$	45,712	$	125,431	$	76,366
Cost of revenue	37,656		27,847		72,689		45,053
Gross profit	27,272		17,865		52,742		31,313
Operating expenses:
Selling and marketing	12,449		9,583		23,356		16,963
Research and development	1,948		1,696		3,134		3,824
General and administrative	13,569		11,040		25,930		19,599
Total operating expenses	27,966		22,319		52,420		40,386
Operating (loss) income	(694)		(4,454)		322		(9,073)
Interest and other expense, net	581		2,145		1,106		4,343
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,275)		(6,599)		(784)		(13,416)
Income tax expense (benefit):
Current income tax expense	36		31		677		56
Deferred income tax benefit	(1,087)		(243)		(3,294)		(1,776)
Total income tax benefit	(1,051)		(212)		(2,617)		(1,720)
Net (loss) income before equity in losses of unconsolidated affiliates	(224)		(6,387)		1,833		(11,696)
Equity in losses of unconsolidated affiliates	(343)		(87)		(529)		(217)
Net (loss) income after equity in losses of unconsolidated affiliates	(567)		(6,474)		1,304		(11,913)
Net loss attributable to redeemable non-controlling interest	—		(117)		—		(268)
Net (loss) income attributable to Heska Corporation	$	(567)	$	(6,357)	$	1,304	$	(11,645)
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Weighted average outstanding shares used to compute basic (loss) earnings per share attributable to Heska Corporation	10,167		8,776		9,825		8,165
Weighted average outstanding shares used to compute diluted (loss) earnings per share attributable to Heska Corporation	10,167		8,776		10,189		8,165

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands) 

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net (loss) income after equity in losses of unconsolidated affiliates	$	(567)	$	(6,474)	$	1,304	$	(11,913)
Other comprehensive income (loss):
Translation adjustments and gains (losses) from intra-entity transactions	1,852		2,216		(3,531)		1,860
Comprehensive income (loss)	1,285		(4,258)		(2,227)		(10,053)
Comprehensive loss attributable to redeemable non-controlling interest	—		(117)		—		(268)
Comprehensive income (loss) attributable to Heska Corporation	$	1,285	$	(4,141)	$	(2,227)	$	(9,785)

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 June 30, 2020 and 2021	Shares	Amount		Shares	Amount
Balances, March 31, 2020	122	$	1	7,843	$	78	$	412,152	$	157	$	(141,750)	$	270,638
Net loss attributable to Heska Corporation	—	—		—	—		—		—		(6,357)		(6,357)
Issuance of common stock, net of shares withheld for employee taxes	—	—		63	1		1,105		—		—		1,106
Conversion of preferred stock to common stock	(122)	(1)		1,509	15		(14)		—		—		—
Stock-based compensation	—	—		—	—		2,444		—		—		2,444
Other comprehensive income	—	—		—	—		—		2,216		—		2,216
Balances, June 30, 2020	—	$	—	9,415	$	94	$	415,687	$	2,373	$	(148,107)	$	270,047
Balances, March 31, 2021	—	$	—	10,418	$	104	$	562,008	$	8,786	$	(145,625)	$	425,273
Net loss attributable to Heska Corporation	—	—		—	—		—		—		(567)		(567)
Issuance of common stock, net of shares withheld for employee taxes	—	—		228	2		1,586		—		—		1,588
Stock-based compensation	—	—		—	—		5,620		—		—		5,620
Other comprehensive income	—	—		—	—		—		1,852		—		1,852
Balances, June 30, 2021	—	$	—	10,646	$	106	$	569,214	$	10,638	$	(146,192)	$	433,766
Note: The quarter ended June 30, 2020 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
Six Months Ended June 30, 2020 and 2021	Shares	Amount		Shares	Amount
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	—	—		—	—		—		—		(11,645)		(11,645)
Issuance of common stock, net of shares withheld for employee taxes	—	—		24	—		904		—		—		904
Issuance of preferred stock, net of issuance costs	122	1		—	—		121,784		—		—		121,785
Conversion of preferred stock to common stock	(122)	(1)		1,509	15		(14)		—		—		—
Stock-based compensation	—	—		—	—		2,797		—		—		2,797
Other comprehensive income	—	—		—	—		—		1,860		—		1,860
Balances, June 30, 2020	—	$	—	9,415	$	94	$	415,687	$	2,373	$	(148,107)	$	270,047
Balances, December 31, 2020	—	$	—	9,476	$	95	$	423,650	$	14,169	$	(150,861)	$	287,053
Adoption of accounting standards	—	—		—	—		(29,834)		—		3,365		(26,469)
Balances, January 1, 2021	—	—		9,476	95		393,816		14,169		(147,496)		260,584
Net income attributable to Heska Corporation	—	—		—	—		—		—		1,304		1,304
Issuance of common stock, net of forfeitures and shares withheld for employee taxes	—	—		229	2		1,764		—		—		1,766
Equity offering, net of issuance costs	—	—		941	9		164,177		—		—		164,186
Stock-based compensation	—	—		—	—		9,457		—		—		9,457
Other comprehensive loss	—	—		—	—		—		(3,531)		—		(3,531)
Balances, June 30, 2021	—	$	—	10,646	$	106	$	569,214	$	10,638	$	(146,192)	$	433,766
Note: The six months ended June 30, 2020 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)

	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income (loss) after equity in losses from unconsolidated affiliates	$	1,304	$	(11,913)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization	6,680		4,704
Non-cash impact of operating leases	1,050		840
Deferred income tax benefit	(3,294)		(1,776)
Stock-based compensation	9,457		2,797
Equity in losses of unconsolidated affiliates	529		217
Accretion of discounts and issuance costs	35		3,049
Other losses	768		65
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable	3,046		(1,268)
Inventories	(4,080)		(4,094)
Other assets	(4,404)		(56)
Accounts payable	(334)		(2,732)
Other liabilities	(3,603)		(2,928)
Net cash provided by (used in) operating activities	7,154		(13,095)
Cash flows from investing activities:
Acquisition of CVM	—		(14,420)
Acquisition of Lacuna, net of cash acquired	(3,882)		—
Promissory note receivable issuance	(9,000)		—
Purchases of property and equipment	(546)		(316)
Proceeds from disposition of property and equipment	41		—
Acquisition of scil, net of cash acquired	—		(105,190)
Net cash used in investing activities	(13,387)		(119,926)
Cash flows from financing activities:
Payment of stock issuance costs	(314)		(214)
Preferred stock proceeds	—		122,000
Proceeds from issuance of common stock	167,198		1,514
Repurchase of common stock	(932)		(610)
Repayments of other debt	(653)		(109)
Borrowings on other debts	—		410
Net cash provided by financing activities	165,299		122,991
Foreign exchange effect on cash and cash equivalents	(247)		189
Net increase (decrease) in cash and cash equivalents	158,819		(9,841)
Cash and cash equivalents, beginning of period	86,334		89,030
Cash and cash equivalents, end of period	$	245,153	$	79,189
Supplemental disclosure of cash flow information:
Non-cash transfers of equipment between inventory and property and equipment, net	$	2,562	$	1,560
Non-cash conversion of preferred stock to common stock	$	—	$	122,000
Consideration payable for scil acquisition	$	—	$	537
Contingent consideration for acquisition	$	1,700	$	—
Indemnity holdback for acquisition	$	370	$	—

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; digital cytology 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 June 30, 2021, and the results of our operations and statements of stockholders' equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020.

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 six months ended June 30, 2021 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 year ended December 31, 2020 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. Beginning in the second quarter 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. During the fourth quarter of 2020 and into the first quarter of 2021, increased restrictions in countries in which we operate, mainly in the European Union, and certain parts of Canada and Australia, re-emerged. These restrictions lessened during the second quarter of 2021, however, with the rise in variants, the extent to which the continuation, or another 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

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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, mainly in our ability to place new capital equipment, primarily under long-term contracts, as a result of any economic impact that 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 credit losses 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 and standalone selling prices 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 fair value of our embedded derivatives; and determining the value of the non-controlling interest in a business combination. 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, 2020, and other than the recently adopted accounting pronouncements described below have not changed materially since such filing.

Adoption of New Accounting Pronouncements

Effective January 1, 2021, we adopted 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we adopted 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, investments 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we early adopted 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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 Company's 3.75% Convertible Senior Notes due 2026 (the "Notes") are a convertible instrument with a cash-conversion feature that is accounted for within the scope of ASC 470-20 and impacted by the adoption of ASU 2020-06. The Company has elected to apply the modified retrospective method wherein the Company recognized a cumulative-effect adjustment to the opening balance of retained earnings (January 1, 2021). Further, the Company will not restate EPS in prior periods. The Company calculated the cumulative-effect adjustment as of January 1, 2021 by comparing (i) the historical amortization schedule for the Notes through December 31, 2020 and (ii) an updated amortization schedule wherein the conversion feature within the Notes would not be separated as an equity component and subsequently recognized as non-cash interest expense under ASC 835-30. As a result of ASU 2020-06, while cash interest expense is not impacted, non-cash interest accretion is limited to the amortization of debt issuance costs under ASC 835-30. Therefore, the Company prepared its transition journal entries by (i) reversing the conversion feature amount recorded in APIC and (ii) reversing the difference in non-cash interest expense via retained earnings. The adoption resulted in a decrease to accumulated deficit of $3.4 million, a decrease to additional paid-in capital of $29.8 million, and an increase to convertible note, non-current, net of $35.2 million. Additionally, due to the adoption, the Company reversed the remaining balance of the net deferred tax liability of $8.8 million, which was initially recorded in connection with the Notes.

Effective January 1, 2021, we adopted ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC's regulations. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

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, currently consisting primarily of Australia, France, Germany, Italy, Malaysia, Spain and Switzerland

Refer to Note 18 for further detail regarding the Company's reportable segments.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
North America Revenue:
POC Lab Instruments & Other	$	3,482	$	2,962	$	6,470	$	5,578
POC Lab Consumables	19,296		13,537		36,248		27,223
POC Imaging	7,101		4,148		13,789		7,644
PVD	6,210		4,880		13,074		9,384
OVP	4,444		3,455		8,225		6,802
Total North America Revenue	$	40,533	$	28,982	$	77,806	$	56,631
International Revenue:
POC Lab Instruments & Other	$	3,987	$	2,206	$	7,001	$	2,440
POC Lab Consumables	11,935		9,470		24,159		10,032
POC Imaging	7,277		4,404		13,935		5,762
PVD	1,196		650		2,530		1,501
OVP	—		—		—		—
Total International Revenue	$	24,395	$	16,730	$	47,625	$	19,735
Total Revenue	$	64,928	$	45,712	$	125,431	$	76,366

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 noncancellable 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 obligations 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 June 30, 2021, the aggregate amount of the transaction price allocated to remaining minimum performance obligations was approximately $156.5 million. As of June 30, 2021, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2021 (remaining)	$	18,313
2022	35,463
2023	31,859
2024	27,220
2025	21,672
Thereafter	22,013
	$	156,540

Contract Balances

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

Contract Assets

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 June 30, 2021 were $1.4 million and $4.3 million for current and non-current assets, respectively, shown net of related unearned interest. The balances as of December 31, 2020 were $1.2 million and $4.1 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 June 30, 2021 and December 31, 2020, contract liabilities were $8.3 million and $8.9 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 six-month period ended June 30, 2021 is approximately $3.1 million of revenue recognized during the period, offset by approximately $2.5 million of additional deferred sales in 2021. Contract liabilities are reported on the accompanying Condensed Consolidated Balance Sheets on a contract-by-contract basis.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3.    ACQUISITIONS AND RELATED PARTY ITEMS

Lacuna Acquisition

On February 1, 2021, the Company completed the acquisition of Lacuna Diagnostics, Inc. ("Lacuna"), a veterinary digital cytology company, to broaden the Company's point of care diagnostic offerings. The Company acquired 100% of the issued and outstanding shares of Lacuna for a purchase price of $4.3 million. The Company then dissolved Lacuna on February 1, 2021. In accordance with the purchase agreement, the Company is required to hold a $0.4 million general indemnity holdback that is intended to provide a non-exclusive source of funds for the payment of any losses identified and shall be released within 18 months of closing. As of June 30, 2021, $0.4 million of the indemnification holdback remains outstanding. As additional consideration for the shares, the Company agreed to a contingent earn-out of an additional $2.0 million based on the achievement of certain performance metrics within a twelve month period ("Initial Earn Out Period"), reducing to $1.0 million if such metrics were met in a twelve month period subsequent to the Initial Earn Out Period. The fair value of the contingent consideration as of the acquisition date was $1.7 million.

The total purchase consideration exceeded the fair value of the identifiable net assets acquired, resulting in $3.9 million of goodwill, primarily related to expanded opportunities with our offerings. All of the goodwill is allocated to the North America segment and is not tax deductible for income tax purposes.

The acquisition was accounted for as a business combination in accordance with ASC 805. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of February 1, 2021.

The information below represents the preliminary purchase price allocation as of the acquisition date (in thousands):

	February 1, 2021
Purchase price	$	4,255
Fair value of contingent consideration	1,700
Total purchase consideration	$	5,955
Cash and cash equivalents	$	3
Accounts receivable	170
Property and equipment, net	530
Other intangible assets, net	1,185
Deferred tax asset	167
Total assets acquired	2,055
Goodwill	3,900
Total fair value of consideration transferred	$	5,955

The Company's preliminary estimates of fair values of the net assets acquired 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.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible assets acquired, amortization method and estimated useful life as of February 1, 2021, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Developed technology	3 years	Straight-line	$	1,000
Customer relationships	6 months	Straight-line	150
Trade name	11 months	Straight-line	35
Total intangible assets acquired			$	1,185

Pro forma financial information related to the acquisition of Lacuna has not been provided as it is not material to our consolidated results of operations.

scil Acquisition

On April 1, 2020, the Company completed the acquisition of scil animal care company GmbH (“scil”) from Covetrus, Inc. The Company purchased 100% of the capital stock of scil for an aggregate price of $110.3 million in cash. 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 purchase price exceeded the identifiable net assets, resulting in goodwill of $46.0 million, primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the experienced workforce acquired. Of the goodwill acquired, $37.3 million is allocated to our International segment and $8.7 million is allocated to our North America segment. All of the goodwill is tax deductible for purposes of calculating Controlled Foreign Corporation tested income, which may result in a decrease to the Company's future U.S. federal tax liability.

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 their fair values as of April 1, 2020. The Company finalized the accounting for the acquisition as of March 31, 2021.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

	April 1, 2020
Total purchase consideration	$	110,290
Cash and cash equivalents	$	5,889
Accounts receivable	10,707
Inventories	11,278
Net investment in lease, current	311
Prepaid expenses	1,692
Other current assets	1,338
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	97,302
Accounts payable	8,221
Accrued liabilities	7,067
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	13,249
Other liabilities	276
Net assets acquired	64,290
Goodwill	46,000
Total fair value of consideration transferred	$	110,290

Per the tax indemnification included in the purchase agreement of scil, the seller has indemnified the Company for $1.1 million related to uncertain tax positions taken in prior years. The outcome of this arrangement will either be settled or expire due to lapse of statute of limitations by 2027. As of June 30, 2021, approximately $0.4 million of the indemnification agreement remains outstanding.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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):

	Six Months Ended June 30, 2020
Revenue, net	$	94,917
Net (loss) income before equity in losses of unconsolidated affiliates	$	(12,512)
Net (loss) income attributable to Heska Corporation	$	(12,461)

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.

Other Related Party Activities

CVM Diagnostico Veternario S.L. and CVM Ecografia S.L. (“CVM”, collectively) conducted related party activities with Practice Clinicas Veterinarias Moviles, S.L. ("CVM Practice"), the owner of which was part of CVM management through June 1, 2021. CVM leases two warehouses from CVM Practice. CVM Practice charged CVM $16 thousand and $15 thousand during the six months ended June 30, 2021 and 2020, 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 $0.2 million as of both June 30, 2021 and December 31, 2020. CVM continues to lease the warehouses from CVM Practice, however the related party relationship was terminated as of June 1, 2021.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4.    INVESTMENTS IN UNCONSOLIDATED AFFILIATES

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

	June 30, 2021		December 31, 2020
Equity method investment	$	3,157	$	3,686
Non-marketable equity security investment	3,018		3,018
Investments in unconsolidated affiliates	$	6,175	$	6,704

Equity Method Investment

On September 24, 2018, the Company invested approximately $5.1 million, including costs, to acquire an equity interest in a business as part of its product development strategy. As of June 30, 2021, the Company's 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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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5.    INCOME TAXES

The Company's total income tax benefit for our loss before income taxes were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,275)	$	(6,599)	$	(784)	$	(13,416)
Total income tax benefit	$	(1,051)	$	(212)	$	(2,617)	$	(1,720)

There were cash payments for income taxes of $0.7 million and $1.2 million for the three and six months ended June 30, 2021, respectively, and there were cash payments of $340 thousand and $347 thousand, respectively, for income taxes for the three and six months ended June 30, 2020. The Company’s tax benefit was $1.1 million and $2.6 million for the three and six months ended June 30, 2021, respectively, compared to the tax benefit of $0.2 million and $1.7 million for the three and six months ended June 30, 2020, respectively. The increase in tax benefit in the six month period is due to excess tax benefits recognized from employee stock compensation and a release in the partial valuation allowance further discussed below. The Company recognized $0.6 million in excess tax benefits related to employee share-based compensation for the three months ended June 30, 2021, compared to $0.2 million recognized for the three months ended June 30, 2020. The Company recognized $1.0 million in excess tax benefits related to employee share-based compensation for the six months ended June 30, 2021, compared to $0.5 million recognized for the six months ended June 30, 2020.

As of June 30, 2021, the Company had a deferred tax asset of approximately $9.4 million from net operating losses and tax credits and a net partial valuation allowance recorded against these deferred tax assets. During the current year, the Company forecasts the release of approximately $1.2 million of the partial valuation allowance through the annual effective tax rate used to estimate tax expense. The release is due to an increase in non-deductible executive compensation and capitalization of research and development expenses that results in the projected utilization of net operating losses in the current year. After the release, the net partial valuation allowance is forecasted to be approximately $3.2 million as of December 31, 2021.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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	June 30, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets	$	4,944	$	5,457
Finance	Property and equipment, net	1,814		1,907
Total Leased Assets		$	6,758	$	7,364
Liabilities
Operating	Operating lease liabilities, current	$	2,035	$	2,087
	Operating lease liabilities, non-current	3,404		3,858
Finance	Deferred revenue, current, and other	235		295
	Other liabilities	278		261
Total Lease Liabilities		$	5,952	$	6,501

Lessor Accounting

The following table summarizes the profit recognized on the commencement date for sales-type leases and lease income for equipment-only operating leases (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Sales-type lease revenue	$	3,414	$	1,298	$	5,157	$	2,587
Sales-type lease cost of revenue	2,717		908		3,977		1,776
Profit recognized at commencement for sales-type leases	$	697	$	390	$	1,180	$	811
Operating lease income	$	543	$	430	$	1,150	$	430

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 six months ended June 30, 2021 and 2020 (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net (loss) income attributable to Heska Corporation	$	(567)	$	(6,357)	$	1,304	$	(11,645)
Basic weighted-average common shares outstanding	10,167		8,776		9,825		8,165
Dilutive effect of stock options and restricted stock awards	—		—		364		—
Diluted weighted-average common shares outstanding	10,167		8,776		10,189		8,165
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)

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 June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Convertible preferred stock	—	332	—	920
Convertible Senior Notes	996	—	996	21
Stock options and restricted stock	374	355	6	299
	1,370	687	1,002	1,240

As more fully described in Note 16, the Notes are convertible under certain circumstances, as defined in the indenture, into a combination of cash and shares of the Company's common stock. As discussed in Note 1, the Company early adopted ASU 2020-06, effective January 1, 2021, which amends certain guidance on the computation of EPS for convertible instruments. Prior to the adoption of ASU 2020-06, the Company used the treasury stock method when calculating the potential dilutive effect of the conversion feature of the Notes on earnings per share, if any. Under ASU 2020-06, the treasury stock method is no longer available, and entities must apply the if-converted method for convertible instruments and the effect of potential share settlement must be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. To determine the dilutive effect to earnings per share using the if-converted method, interest expense on the outstanding Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and six months ended June 30, 2021, all of the potentially issuable shares with respect to the Notes were excluded from the calculation of diluted net earnings per share because the effect was anti-dilutive. The Company has elected to apply the modified retrospective method of adoption and will not restate EPS for the prior period.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8.    GOODWILL AND OTHER INTANGIBLES

The following summarizes the change in goodwill during the six months ended June 30, 2021 (in thousands):

	North America		International		Total
Carrying amount, December 31, 2020	$	35,414	$	52,862	$	88,276
Goodwill attributable to acquisitions (subject to change)	3,900		—		3,900
Foreign currency adjustments	—		(1,405)		(1,405)
Carrying amount, June 30, 2021	$	39,314	$	51,457	$	90,771

Other intangibles consisted of the following (in thousands):

	June 30, 2021						December 31, 2020
	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	$	46,196	$	(8,878)	$	37,318	$	46,989	$	(6,436)	$	40,553
Developed technology	9,654		(2,278)		7,376		8,669		(1,696)		6,973
Trade names	230		(137)		93		197		(105)		92
Intangible assets not subject to amortization:
Trade names	8,111		—		8,111		8,374		—		8,374
Total intangible assets	$	64,191	$	(11,293)	$	52,898	$	64,229	$	(8,237)	$	55,992

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization expense	$	1,652	$	1,624	$	3,056	$	2,053

The remaining weighted-average amortization period for intangible assets is approximately 8.1 years.

Estimated amortization expense related to intangibles for each of the five years from 2021 (remaining) through 2025 and thereafter is as follows (in thousands):

Year Ending December 31,
2021 (remaining)	$	3,116
2022	6,111
2023	5,749
2024	5,306
2025	5,248
Thereafter	19,257
Total amortization related to finite-lived intangible assets	$	44,787
Indefinite-lived intangible assets	8,111
Net intangible assets	$	52,898

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

No triggering events were identified in the second quarter of 2021 to require additional impairment testing.

9.    PROPERTY AND EQUIPMENT, NET

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

	June 30, 2021		December 31, 2020
Land	$	2,520	$	2,590
Building	12,439		12,737
Machinery and equipment	41,407		40,411
Office furniture and equipment	2,120		2,047
Computer hardware and software	5,102		4,773
Leasehold and building improvements	10,729		10,728
Construction in progress	61		4
Property and equipment, gross	74,378		73,290
Less accumulated depreciation	(40,082)		(37,748)
Total property and equipment, net	$	34,296	$	35,542

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 June 30, 2021 and December 31, 2020, was $14.9 million and $13.6 million, respectively, before accumulated depreciation of $5.1 million and $4.7 million, respectively.

Depreciation expense was $1.6 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and $3.5 million and $2.7 million for the six months ended June 30, 2021 and 2020, respectively.

10.    INVENTORIES

Inventories consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	12,798	$	14,454
Work in process	4,850		4,262
Finished goods	23,556		21,321
Total inventories	$	41,204	$	40,037

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):

	June 30, 2021		December 31, 2020
Accrued payroll and employee benefits	$	6,458	$	7,949
Accrued property taxes	403		659
Accrued purchase orders	2,298		1,549
Accrued taxes	3,839		3,731
Other	4,370		4,167
Total accrued liabilities	$	17,368	$	18,055

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

12.    CAPITAL STOCK

During the six months ended June 30, 2021, the Company granted the following stock options, restricted stock awards, and restricted stock units:

	Six Months Ended June 30, 2021
	Options/Awards/Units Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	54,300	$	78.19
Restricted stock awards	203,369	$	196.48
Restricted stock units	6,000	$	172.11

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. 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 and restricted stock units related to service and/or company performance targets based on grant date fair value and will expense over the requisite service period when achievement of those conditions is deemed probable. For restricted stock awards and restricted stock units related to market conditions, we utilized a Monte Carlo simulation model to estimate grant date fair value and expense over the requisite period.

2021 Equity Offering

On March 5, 2021, the Company completed a public offering of 940,860 shares of common stock, $0.01 par value per share, at a public offering price of $186.00 per share. The Company received net proceeds of approximately $164.2 million after deducting underwriting discounts and commissions and issuance costs. The Company granted the underwriters an option to purchase up to an additional 141,129 shares of common stock from the Company at the offering price of $186.00 per share (less the underwriting discounts and commissions), within 30 days of the Prospectus Supplement dated March 2, 2021. The Company evaluated the accounting treatment of the option under ASC 815-40, Derivatives and Hedging - Contracts on an Entity's

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Own Equity, and determined that it met the criteria for equity treatment thereunder. The underwriters’ option was not exercised and expired on April 1, 2021. The Company anticipates using the net proceeds of the offering for general corporate purposes, including working capital, further development and potential commercialization of current and future product initiatives, collaborations, and capital expenditures. The Company may also use a portion of the net proceeds of this offering to fund possible investments in or acquisitions of complementary businesses, products or technologies, or to repay indebtedness.

13.    ACCUMULATED OTHER COMPREHENSIVE INCOME

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

	Pension Adjustments		Foreign Currency Translation1		Foreign Currency Gain (Loss) on Intra-Entity Transactions2		Total Accumulated Other Comprehensive Income
Balances at December 31, 2020	$	(386)	$	5,872	$	8,683	$	14,169
Current period other comprehensive loss	—		(1,206)		(2,325)		(3,531)
Balances at June 30, 2021	$	(386)	$	4,666	$	6,358	$	10,638

1 Foreign currency gains and losses related to translation of foreign subsidiary financial statements.

2 The Company has intercompany loans of a long-term investment nature that are denominated in a foreign currency. These transactions are considered to be of a long-term nature if settlement is not planned or anticipated in the foreseeable future.

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 repair 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 $0.5 million and $0.5 million as of June 30, 2021 and December 31, 2020, 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. Additionally, the Company is indemnified by the scil acquisition agreement for this claim.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of June 30, 2021, 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 $48.1 million as of June 30, 2021.

15.    INTEREST AND OTHER EXPENSE, NET

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest income	$	(467)	$	(120)	$	(856)	$	(353)
Interest expense	922		2,333		1,842		4,679
Other expense (income), net	126		(68)		120		17
Total interest and other expense, net	$	581	$	2,145	$	1,106	$	4,343

Cash paid for interest for the three months ended June 30, 2021 and 2020 was $5 thousand and $4 thousand, respectively. Cash paid for interest for the six months ended June 30, 2021and 2020 was $1.6 million and $1.6 million, respectively.

16.    CONVERTIBLE NOTES

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, 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.

Refer to Note 16, Convertible Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's 2020 Form 10-K for further information on the Notes.

No portion of the Notes was converted during the six months ended June 30, 2021 and the liability component was classified as long-term debt on the Company's Condensed Consolidated Balance Sheet as of June 30, 2021.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As discussed in Note 1, the Company early adopted ASU 2020-06, effective January 1, 2021, which simplifies the accounting for certain convertible instruments. Under the new standard, qualifying convertible debt is accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. As a result of ASU 2020-06, the Company's cash interest expense is not impacted, however, the Company's non-cash interest accretion is limited to the amortization of debt issuance costs under ASC 835-30. The new effective interest rate of the Notes post-adoption is 4.35%. The Company also reversed the conversion feature amount recorded in APIC and reversed the difference in non-cash interest expense via retained earnings.

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

	June 30, 2021		December 31, 2020
Principal amount of the Notes	$	86,250	$	86,250
Unamortized debt discount	(2,426)		(37,791)
Net carrying amount	$	83,824	$	48,459

Interest expense related to the Notes is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest expense related to contractual coupon interest	$	809	$	809	$	1,617	$	1,617
Interest expense related to amortization of the debt discount	103		1,524		205		3,049
	$	912	$	2,333	$	1,822	$	4,666

As of June 30, 2021, the remaining period over which the unamortized discount will be amortized is 63.0 months.

The estimated fair value of the Notes was $235.4 million and $156.9 million as of June 30, 2021 and December 31, 2020, 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 $229.73 on June 30, 2021, the if-converted value exceeded the aggregate principal amount of the Notes by $142.5 million.

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

17.    NOTE RECEIVABLES

Convertible Promissory Note

On December 9, 2020, the Company's equity method investee (the “Equity Method Investee”), issued a Convertible Promissory Note to the Company (the “Convertible Promissory Note”) with a principal amount of $6.65 million and a stated interest rate of 3.0% per annum that is payable monthly. The Convertible Promissory Note has a maturity date of December 9, 2023, or otherwise upon qualified redemption event or in the event of a default. Refer to Note 4 for additional information on our equity method investment.

The conversion of the Convertible Promissory Note is contingent upon certain events. Due to the convertible debt features included in the Convertible Promissory Note, it is not an equity security and is therefore not considered an additional investment in our Equity Method Investee. The Company accounted for the transaction as a note receivable, included in Related party convertible note receivable, net on the Consolidated Balance Sheets. The note receivable will be measured at amortized cost and evaluated for credit losses each reporting period. The Company determined that the redemption features described above met the definition of an embedded derivative that requires bifurcation from the note receivable host. The Company measured the redemption features at fair value, with the residual proceeds paid allocated to the note receivable host, creating a discount to the note receivable. The discount will be amortized over the contractual term of the Convertible Promissory Note using the effective interest method. The effective interest rate of the Convertible Promissory Note is 8.69%, and the amortization of the discount will be included as interest income within Interest and other expense, net on the Consolidated Statements of (Loss) Income.

The carrying value of the note receivable, included in Related party convertible note receivable, net on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	6,650	$	6,650
Unamortized discount	(828)		(977)
Net carrying amount	$	5,822	$	5,673

The fair value of the embedded derivative was $1.0 million as of June 30, 2021 and December 31, 2020, respectively, and is included in Related party convertible note receivable, net on the Consolidated Balance Sheets. The fair value of the derivative will be remeasured each reporting period, with the mark-to-market adjustment to be included in Interest and other expense, net on the Consolidated Statements of (Loss) Income. In addition, the Company recorded an allowance for expected credit losses on the promissory note of $33 thousand as of June 30, 2021.

Promissory Note

On February 1, 2021, one of the Company's equity investees (the "Investee"), which the Company accounts for as a non-marketable equity security, issued a Promissory Note to the Company (the “Promissory Note”) with a principal amount of $9.0 million and a stated interest rate of 10.0% per annum that is payable monthly. The Promissory Note has a maturity date of December 1, 2024 and provides for interest only payments through December 1, 2023. Beginning on January 1, 2024, the Promissory Note requires repayment of the principal and interest over twelve consecutive monthly payments. As additional consideration, the Company

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

was also issued a warrant to acquire securities of the Investee that expires December 31, 2034. Refer to Note 4 for additional information on our equity investments.

The Company evaluated the accounting treatment of the warrant to acquire securities and determined is a freestanding instrument that meets the definition of an embedded derivative under ASC 815 and requires bifurcation from the note receivable host. The Company measured the warrant at fair value, with the residual proceeds paid allocated to the note receivable host, creating a discount to the note receivable. The discount will be amortized over the contractual term of the Promissory Note using the effective interest method. The effective interest rate of the Promissory Note is 10.99%, and the amortization of the discount will be included as interest income within Interest and other expense, net on the Consolidated Statements of (Loss) Income.

The carrying value of the note receivable, included in Promissory note receivable from investee, net, on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	9,000	$	—
Unamortized discount	(283)		—
Net carrying amount	$	8,717	$	—

The fair value of the embedded derivative was $0.3 million at issuance and $0.4 million as of June 30, 2021, and is included in Other non-current assets on our Consolidated Balance Sheets. The fair value of the derivative will be remeasured each reporting period, with the mark-to-market adjustment to be included in other Interest and other expense, net on the Consolidated Statements of (Loss) Income. In addition, the Company recorded an allowance for expected credit losses on the note receivable of $0.3 million as of June 30, 2021.

18.    SEGMENT REPORTING

On April 1, 2020, Heska completed the acquisition of scil. Following this acquisition, the Company restructured its 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 the Company's operations in the United States, Canada and Mexico and the International segment is comprised of geographies outside of North America, which are the Company's 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. However, there are certain corporate expenses included in the North America segment that the Company does not allocate. Such expenses include research and development, certain selling, marketing, general, and administrative costs that support the global organization. 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 included in Part II. Item 8 of Heska's Annual Report on Form 10-K for the year ended December 31, 2019.

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

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 June 30, 2021 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 June 30, 2021	North America			International			Total
Total revenue	$	40,533		$	24,395		$	64,928
Cost of revenue	21,111			16,545			37,656
Gross profit	$	19,422		$	7,850		$	27,272
Gross margin	48		%	32		%	42		%
Operating income (loss)	$	130		$	(824)		$	(694)

Three Months Ended June 30, 2020	North America			International			Total
Total revenue	$	28,982		$	16,730		$	45,712
Cost of revenue	16,222			11,625			27,847
Gross profit	$	12,760		$	5,105		$	17,865
Gross margin	44		%	31		%	39		%
Operating loss	$	(3,067)		$	(1,387)		$	(4,454)

Six Months Ended June 30, 2021	North America			International			Total
Total revenue	$	77,806		$	47,625		$	125,431
Cost of revenue	40,875			31,814			72,689
Gross profit	$	36,931		$	15,811		$	52,742
Gross margin	47		%	33		%	42		%
Operating income (loss)	$	1,160		$	(838)		$	322

Six Months Ended June 30, 2020	North America			International			Total
Total revenue	$	56,631		$	19,735		$	76,366
Cost of revenue	31,368			13,685			45,053
Gross profit	$	25,263		$	6,050		$	31,313
Gross margin	45		%	31		%	41		%
Operating loss	$	(7,161)		$	(1,912)		$	(9,073)

Asset information by reportable segment as of June 30, 2021 is as follows (in thousands):

As of June 30, 2021	North America		International		Total
Total assets	$	418,842	$	160,524	$	579,366

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Asset information by reportable segment as of December 31, 2020 is as follows (in thousands):

As of December 31, 2020	North America		International		Total
Total assets	$	238,550	$	161,289	$	399,839

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HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     19.    SUBSEQUENT EVENTS

On July 1, 2021, the Company completed the acquisition of BiEsseA s.r.l., a veterinary reference lab based in Milan, Italy ("BiEsseA"). In exchange for all of the shares of BiEsseA, the Company paid total consideration of $4.7 million upon closing. The Company expects to account for this transaction as a business combination however, the Company does not have the accounting complete as of the date of this filing due to the limited time that has passed since the date of acquisition. As additional consideration for the shares of BiEsseA, the Company agreed to make a contingent earn-out payment of up to an additional $3.0 million based on the achievement of certain performance metrics during the next three years.

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 I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 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 August 3, 2021 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 ("POC") laboratory instruments and consumables; Point of Care digital imaging diagnostic instruments; digital cytology 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.

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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.

Radiography is the largest product offering in Point of Care imaging, which includes digital and computed radiography and ultrasound instruments. 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 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 72% and 28%, respectively, of revenue for the three months ended June 30, 2021 and 71% and 29%, respectively, for the six months ended June 30, 2021. Revenue from direct sales and distribution relationships represented 68% and 32%, respectively, of revenue for the three months ended June 30, 2020 and 68% and 32%, respectively, for the six months ended June 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 result, the Company determined it has two operating and reportable segments: North America and

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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 is 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 18 - Segment Reporting to the consolidated financial statements included in Part II. Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information.

Impact of COVID-19 Pandemic and Current Economic Environment

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 lower demand for diagnostic testing services. Beginning in the second quarter 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. During the fourth quarter of 2020 and into the first quarter of 2021, increased restrictions in countries in which we operate, mainly in the European Union and certain parts of Canada and Australia, re-emerged. These restrictions lessened during the second quarter of 2021 however, with the rise in variants, the extent to which the continuation, or another 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, mainly in our ability to place new capital equipment, primarily under long-term contracts, as a result of any economic impact that may occur in the future.

As a result of social distancing measures, on-site installations of POC Lab and Imaging equipment continue to experience intermittent delays. While not significant to the overall results of the of the year, on-site installations of equipment have been impacted since March 2020. However, our financial position remains strong. On March 5, 2021, we completed a public offering of shares of common stock. As a result, 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. We will, however, actively seek opportunities that are consistent with our strategic direction, which may include a need to raise additional capital.

While we have experienced some intermittent delays in receiving supply and a slight increase in shipping costs, our supply chain has not been significantly impacted. 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 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 may temporarily 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

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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.

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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue, net	$	64,928		$	45,712		$	125,431		$	76,366
Gross profit	27,272			17,865			52,742			31,313
Operating expenses	27,966			22,319			52,420			40,386
Operating (loss) income	(694)			(4,454)			322			(9,073)
Interest and other expense, net	581			2,145			1,106			4,343
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,275)			(6,599)			(784)			(13,416)
Income tax benefit	(1,051)			(212)			(2,617)			(1,720)
Net (loss) income before equity in losses of unconsolidated affiliates	(224)			(6,387)			1,833			(11,696)
Equity in losses of unconsolidated affiliates	(343)			(87)			(529)			(217)
Net (loss) income after equity in losses of unconsolidated affiliates	(567)			(6,474)			1,304			(11,913)
Net loss attributable to redeemable non-controlling interest	—			(117)			—			(268)
Net (loss) income attributable to Heska Corporation	$	(567)		$	(6,357)		$	1,304		$	(11,645)
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.06)		$	(0.72)		$	0.13		$	(1.43)
Non-GAAP net income per diluted share(1)(2)	$	0.50		$	—		$	1.08		$	0.03
Adjusted EBITDA(1)	$	8,429		$	4,146		$	16,827		$	5,065
Net (loss) income margin(1)	(0.3)		%	(14.0)		%	1.5		%	(15.3)		%
Adjusted EBITDA margin(1)	13.0		%	9.1		%	13.4		%	6.6		%

(1) See “Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net income and Non-GAAP net income per diluted share to diluted earnings (loss) per share attributable to Heska Corporation, the closest comparable GAAP measures, for each of the periods presented. Net (loss) income margin and adjusted EBITDA margin are calculated as the ratio of net income (loss) and adjusted EBITDA, respectively, to revenue.

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(2) Shares used in the diluted per share calculation for non-GAAP net income per diluted share are (in thousands): 10,530 for the three months ended June 30, 2021 compared to 9,269 for the three months ended June 30, 2020 and 10,189 for the six months ended June 30, 2021 compared to 8,165 for the six months ended June 30, 2020.

Revenue

Total revenue increased 42.0% to $64.9 million for the three months ended June 30, 2021, compared to $45.7 million for the three months ended June 30, 2020. Total revenue increased 64.2% to $125.4 million in the six months ended June 30, 2021, compared to $76.4 million in the six months ended June 30, 2020. The significant increases in revenue are driven mainly by significant growth in POC Lab Consumables of 35.7% and 62.2% in the three and six months ended June 30, 2021. We also experienced recovery from COVID impacts in the prior year related to capital placements in POC Lab instruments and POC Imaging products, and increased sales of Allergy and Tri Heart. The six months ending June 30, 2021 are also favorably impacted by the acquisition of scil, which was acquired on April 1, 2020.

Gross Profit

Gross profit increased 52.7% to $27.3 million in the three months ended June 30, 2021, compared to $17.9 million in the three months ended June 30, 2020. Gross margin increased to 42.0% in the three months ended June 30, 2021, compared to 39.1% in the three months ended June 30, 2020. Gross profit increased 68.4% to $52.7 million in the six months ended June 30, 2021, compared to $31.3 million in the six months ended June 30, 2020. Gross margin increased to 42.0% in six months ended June 30, 2021, compared to 41.0% in the six months ended June 30, 2020. The increase in gross profit for both periods was due mainly to increased revenue. The increase in gross margin percentage for both periods was due to favorable product mix.

Operating Expenses

Selling and marketing expenses increased 29.9% to $12.4 million in the three months ended June 30, 2021, compared to $9.6 million in the three months ended June 30, 2020. Selling and marketing expenses increased 37.7% to $23.4 million in the six months ended June 30, 2021, compared to $17.0 million in the six months ended June 30, 2020. The increase in both periods is driven by increased stock-based compensation expenses of $0.8 million and $1.8 million for the three and six months ended June 30, 2021, respectively, as well as the impact of international expansion related to recent acquisitions, which are in line with management expectations.

Research and development expenses increased 14.9% to $1.9 million in the three months ended June 30, 2021, compared to $1.7 million in the three months ended June 30, 2020. Research and development expenses decreased 18.0% to $3.1 million in six months ended June 30, 2021, compared to $3.8 million in the six months ended June 30, 2020. The variance is related to lower spending on product development for urine and fecal diagnostic analyzer and enhanced immunodiagnostic offerings in the current year.

General and administrative expenses increased 22.9% to $13.6 million in the three months ended June 30, 2021, compared to $11.0 million in the three months ended June 30, 2020. General and administrative expenses increased 32.3% to $25.9 million in the six months ended June 30, 2021, compared to $19.6 million in the six months ended June 30, 2020. The increase in both periods is driven by increased stock-based compensation expenses of $1.9 million and $3.6 million for the three and six months ended June 30, 2021, respectively, and other general and administrative costs related to the impact of international acquisitions. These increases are partially offset by lower one-time costs of $1.9 million and $5.6 million incurred in the three and six months ended June 30, 2020, respectively, related to the acquisition of scil that did not repeat in the three and six months ended June 30, 2021, respectively.

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Interest and Other Expense, net

Interest and other expense (income), net, was $0.6 million in the three months ended June 30, 2021, compared to $2.1 million in the three months ended June 30, 2020. Interest and other expense (income), net, was $1.1 million in the six months ended June 30, 2021, compared to $4.3 million in the six months ended June 30, 2020. The decrease in interest and other expense in both periods was primarily driven by a change in accounting treatment related to non-cash interest expense as a result of the Notes.

Income Tax (Benefit) Expense

For the three months ended June 30, 2021, the Company had a total income tax benefit of $1.1 million, including $1.1 million of domestic deferred income tax expense and $36 thousand of current income tax expense. In the three months ended June 30, 2020, the Company had a total income tax benefit of $0.2 million, including $0.2 million of domestic deferred income tax benefit and $31 thousand of current income tax expense. The Company recognized $0.6 million in excess tax benefits related to employee share-based compensation in the three months ended June 30, 2021, compared to $0.2 million recognized in the three months ended June 30, 2020. For the six months ended June 30, 2021 the Company had a total income tax benefit of $2.6 million, including $3.3 million of domestic deferred income tax expense and $0.7 million of current income tax expense. In the six months ended June 30, 2020, the Company had a total income tax benefit of $1.7 million, including $1.8 million of domestic deferred income tax benefit and $56 thousand of current income tax expense. The Company recognized $1.0 million in excess tax benefits related to employee share-based compensation in the six months ended June 30, 2021, compared to $0.5 million recognized in the six months ended June 30, 2020. The increase in tax benefit for the 2021 periods is due to the excess tax benefits from employee stock compensation, and the release of the valuation allowance for tax credits and the current year expiring net operating loss.

Net (Loss) Income Attributable to Heska Corporation

Net loss attributable to Heska was $0.6 million in the three months ended June 30, 2021, compared to net loss attributable to Heska of $6.4 million in the three months ended June 30, 2020. Net income attributable to Heska was $1.3 million in the six months ended June 30, 2021, compared to net loss attributable to Heska of $11.6 million in the six months ended June 30, 2020. 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. In October 2020, the Company acquired the remaining 30% minority interest in Optomed. Net income is higher in both comparative periods due to increases in revenue and gross profit; partially offset by increased operating expenses as discussed above, lower interest relating to the Notes, and increased tax benefit.

Adjusted EBITDA

Adjusted EBITDA in the three months ended June 30, 2021 was $8.4 million (13.0% adjusted EBITDA margin), compared to $4.1 million (9.1% adjusted EBITDA margin) in the three months ended June 30, 2020. Adjusted EBITDA was $16.8 million (13.4% adjusted EBITDA margin) in the six months ended June 30, 2021, compared to $5.1 million (6.6% adjusted EBITDA margin) in the six months ended June 30, 2020. The increase is driven by increased revenue and gross profit as discussed above. The majority of the increases in operating expenses are excluded from adjusted EBITDA due to their nature. See “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA to net (loss) income, the closest comparable GAAP measure, for each of the periods presented.

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Earnings Per Share

Loss per share attributable to Heska was $0.06 per diluted share in the three months ended June 30, 2021 compared to loss of $0.72 per diluted share in the three months ended June 30, 2020. In the six months ended June 30, 2021 we had income of $0.13 per diluted share compared to a loss of $1.43 per diluted share in the six months ended June 30, 2020. The increases in both periods is primarily due to increases in revenue and profit; partially offset by operating expenses as discussed above, lower interest and amortization charges relating to the Notes, and increased tax benefit.

Non-GAAP Earnings Per Share

Non-GAAP EPS was income of $0.50 per diluted share in the three months ended June 30, 2021 compared to income of $0.00 per diluted share in the three months ended June 30, 2020. In the six months ended June 30, 2021 non-GAAP EPS was income of $1.08 per diluted share compared to income of $0.03 per diluted share in the six months ended June 30, 2020. The increase in both periods is primarily due to increases in revenue and profit, partially offset by operating expenses. 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.

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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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net (loss) income(1)	$	(224)		$	(6,387)		$	1,833		$	(11,696)
Income tax benefit	(1,051)			(212)			(2,617)			(1,720)
Interest expense, net	455			2,213			986			4,326
Depreciation and amortization	3,109			3,330			6,680			4,704
EBITDA	$	2,289		$	(1,056)		$	6,882		$	(4,386)
Acquisition-related and other one-time costs(2)	862			2,728			1,017			6,603
Stock-based compensation	5,621			2,444			9,457			2,797
Equity in losses of unconsolidated affiliates	(343)			(87)			(529)			(217)
Net loss attributable to non-controlling interest	—			117			—			268
Adjusted EBITDA	$	8,429		$	4,146		$	16,827		$	5,065
Net (loss) income margin(3)	(0.3)		%	(14.0)		%	1.5		%	(15.3)		%
Adjusted EBITDA margin(3)	13.0		%	9.1		%	13.4		%	6.6		%

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

(2) To exclude the effect of one-time charges of $0.9 million and $1.0 million for the three and six months ending June 30, 2021, and $2.7 million and $6.6 million for the three and six months ending June 30, 2020. These costs were incurred primarily as a result of acquisition-related charges.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
GAAP net (loss) income attributable to Heska per diluted share	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Acquisition-related and other one-time costs(1)	0.08		0.29		0.10		0.81
Amortization of acquired intangibles(2)	0.16		0.18		0.30		0.25
Purchase accounting adjustments related to inventory and fixed asset step-up(3)	0.01		0.04		0.02		0.05
Amortization of debt discount and issuance costs	—		0.16		—		0.37
Stock-based compensation	0.53		0.26		0.93		0.34
Loss on equity investee transactions	0.03		0.01		0.05		0.03
Estimated income tax effect of above non-GAAP adjustments(4)	(0.25)		(0.22)		(0.45)		(0.39)
Non-GAAP net income per diluted share	$	0.50	$	—	$	1.08	$	0.03
Shares used in diluted per share calculations	10,530		9,269		10,189		8,165

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(1) To exclude the effect of one-time charges of $0.9 million and $1.0 million for the three and six months ending June 30, 2021, and $2.7 million and $6.6 million for the three and six months ending June 30, 2020. These costs were incurred primarily as a result of acquisition related charges.

(2) To exclude the effect of amortization of acquired intangibles of $1.7 million and $3.1 million in the three and six months ended June 30, 2021, compared to $1.6 million and $2.1 million in the three and six months ended June 30, 2020. 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2021, compared to $0.4 million and $0.4 million in the three and six months ended June 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 $40 thousand and $0.1 million for the three and six months ended June 30, 2021, respectively, compared to $1.3 million and $4.0 million for the three and six months ended June 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 $0.6 million and $1.0 million for the three and six months ended June 30, 2021, respectively, compared to $0.2 million and $0.5 million for the three and six months ended June 30, 2020, 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.

The North America segment represented approximately 62.4% and 62.0% of our revenue for the three and six months ended June 30, 2021, respectively, and the International segment represented approximately 37.6% and 38.0% of our revenue for the three and six months ended June 30, 2021, respectively.

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

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North America Segment

	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2021			2020			Dollar Change		% Change		2021			2020			Dollar Change		% Change
Point of Care laboratory:	$	22,778		$	16,499		$	6,279	38.1	%	$	42,718		$	32,801		$	9,917	30.2	%
Instruments & Other	3,482			2,962			520		17.6	%	6,470			5,578			892		16.0	%
Consumables	19,296			13,537			5,759		42.5	%	36,248			27,223			9,025		33.2	%
Point of Care imaging	7,101			4,148			2,953		71.2	%	13,789			7,644			6,145		80.4	%
PVD	6,210			4,880			1,330		27.3	%	13,074			9,384			3,690		39.3	%
OVP	4,444			3,455			989		28.6	%	8,225			6,802			1,423		20.9	%
Total North America revenue	$	40,533		$	28,982		$	11,551	39.9	%	$	77,806		$	56,631		$	21,175	37.4	%
North America Gross Profit	$	19,422		$	12,760		$	6,662	52.2	%	$	36,931		$	25,263		$	11,668	46.2	%
North America Gross Margin	47.9		%	44.0		%					47.5		%	44.6		%
North America Operating Income (Loss)	$	130		$	(3,067)		$	3,197	104.2	%	$	1,160		$	(7,161)		$	8,321	116.2	%
North America Operating Margin	0.3		%	(10.6)		%					1.5		%	(12.6)		%

North America segment revenue increased 39.9% to $40.5 million for the three months ended June 30, 2021, compared to $29.0 million for the three months ended June 30, 2020. The $11.6 million increase was driven by a 42.5% increase in revenue in POC Lab Consumables, which had increased utilization and price in the current period, increased POC Imaging sales of $3.0 million driven by increased sales in Canada, and higher PVD sales of $1.3 million, primarily for allergy and Tri-heart. North America segment revenue increased 37.4% to $77.8 million for the six months ended June 30, 2021, compared to $56.6 million for the six months ended June 30, 2020. The $21.2 million increase was driven by a 33.2% increase in revenue in POC Lab Consumables, which had increased utilization and price in the current period, increased POC imaging sales of $6.1 million driven by increased sales in Canada, and higher PVD sales of $3.7 million, primarily for allergy and Tri-heart.

Gross profit for the North America segment was $19.4 million compared to $12.8 million for the three months ended June 30, 2021 and 2020, respectively. Gross profit was $36.9 million compared to $25.3 million for the six months ended June 30, 2021 and 2020, respectively. The increase in gross profit for both periods is primarily driven by increased revenue in the current year periods. Gross margin was 47.9% for the three months ended June 30, 2021, compared to 44.0% in the three months ended June 30, 2020. Gross margin was 47.5% for the six months ended June 30, 2021, compared to 44.6% in the six months ended June 30, 2020. The increase is due to favorable product mix, primarily due to increased sales of higher margin POC Lab Consumables, and increased margin from OVP.

North America operating income increased $3.2 million and $8.3 million for the three and six months ended June 30, 2021 compared to the prior year periods. The increase is driven by increased revenue and margin; partially offset by higher operating expenses, primarily due to higher stock-based compensation expenses.

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International Segment

	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2021			2020			Dollar  Change		%  Change		2021			2020			Dollar  Change		%  Change
Point of Care laboratory:	$	15,922		$	11,676		$	4,246	36.4	%	$	31,160		$	12,472		$	18,688	149.8	%
Instruments & Other	3,987			2,206			1,781		80.7	%	7,001			2,440			4,561		186.9	%
Consumables	11,935			9,470			2,465		26.0	%	24,159			10,032			14,127		140.8	%
Point of Care imaging	7,277			4,404			2,873		65.2	%	13,935			5,762			8,173		141.8	%
PVD	1,196			650			546		84.0	%	2,530			1,501			1,029		68.6	%
Total International revenue	$	24,395		$	16,730		$	7,665	45.8	%	$	47,625		$	19,735		$	27,890	141.3	%
International Gross Profit	$	7,850		$	5,105		$	2,745	53.8	%	$	15,811		$	6,050		$	9,761	161.3	%
International Gross Margin	32.2		%	30.5		%					33.2		%	30.7		%
International Operating Loss	$	(824)		$	(1,387)		$	563	40.6	%	$	(838)		$	(1,912)		$	1,074	56.2	%
International Operating Margin	(3.4)		%	(8.3)		%					(1.8)		%	(9.7)		%

International segment revenue was $24.4 million compared to $16.7 million for the three months ended June 30, 2021 and 2020, respectively. International segment revenue was $47.6 million compared to $19.7 million for the six months ended June 30, 2021 and 2020, respectively. The increase in the three months ended June 30, 2021 is due to a 26.0% increase in revenue in POC Lab Consumables. For the three months ended June 30, 2021, we also saw an increase in revenue of $2.9 million in POC Imaging and $1.8 million in POC Lab Instruments, as a result of fewer COVID-19 impacts in the current year. The increase in the six months ended June 30, 2021 is due to increased POC Lab Consumables revenue, fewer COVID-19 impacts for POC Imaging and POC Lab Instruments and the acquisition of scil, which occurred on April 1, 2020.

Gross profit for the International segment was $7.9 million compared to $5.1 million for the three months ended June 30, 2021 and 2020, respectively. Gross profit was $15.8 million compared to $6.1 million for the six months ended June 30, 2021 and 2020, respectively. Gross margin for the International segment was 32.2% and 33.2% for the three and six months ended June 30, 2021, respectively, compared to 30.5% and 30.7% for the three and six months ended June 30, 2020, respectively. The increase in gross profit for both periods is primarily driven by increased revenue. The increase in gross margin is driven by favorable mix related to increased POC Lab Consumable sales and POC Imaging products.

International segment operating loss decreased $0.6 million and $1.1 million for the three and six months ended June 30, 2021, respectively, compared to the prior year periods. The decrease in operating loss for the three months ended June 30, 2021 is driven by increased International segment revenue and gross profit, as discussed above. The decrease in operating loss for the six months ended June 30, 2020 is driven by increased International segment revenue and gross profit as a result of the scil acquisition, as discussed above.

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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 $245.2 million, which includes net proceeds from the issuance of common stock of approximately $165 million on March 5, 2021.

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

	Six Months Ended June 30,				Change
	2021		2020		Dollar Change		% Change
Net cash provided by (used in) operating activities	$	7,154	$	(13,095)	$	20,249	154.6	%
Net cash used in investing activities	(13,387)		(119,926)		106,539		88.8	%
Net cash provided by financing activities	165,299		122,991		42,308		34.4	%
Foreign exchange effect on cash and cash equivalents	(247)		189		(436)		(230.7)	%
Increase (decrease) in cash and cash equivalents	158,819		(9,841)		168,660		1,713.9	%
Cash and cash equivalents, beginning of the period	86,334		89,030		(2,696)		(3.0)	%
Cash and cash equivalents, end of the period	$	245,153	$	79,189	$	165,964	209.6	%

For the six months ended June 30, 2021 and June 30, 2020, cash flow provided by (used in) operations was $7.2 million and $(13.1) million, respectively, which was primarily the result of (in thousands):

	Six Months Ended June 30,				Change
	2021		2020		Dollar Change		% Change
Net income (loss)	$	1,304	$	(11,913)	$	13,217	(110.9)	%
Non cash expenses and other adjustments	15,225		9,896		5,329		53.9	%
Change in accounts receivable	3,046		(1,268)		4,314		(340.2)	%
Change in inventories, net	(4,080)		(4,094)		14		(0.3)	%
Change in other assets	(4,404)		(56)		(4,348)		7,764.3	%
Change in accounts payable	(334)		(2,732)		2,398		(87.8)	%
Change in other liabilities	(3,603)		(2,928)		(675)		23.1	%
Net cash provided by (used in) operating activities	$	7,154	$	(13,095)	$	20,249	(154.6)	%

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For the six months ended June 30, 2021 and June 30, 2020, cash flow used in investing activities was $13.4 million and $119.9 million, respectively, which was primarily used for (in thousands):

	Six Months Ended June 30,				Change
	2021		2020		Dollar Change		% Change
Acquisition of CVM	$	—	$	(14,420)	$	14,420	NM
Acquisition of Lacuna, net of cash acquired	(3,882)		—		(3,882)		NM
Promissory note receivable issuance	(9,000)		—		(9,000)		NM
Purchases of property and equipment	(546)		(316)		(230)		NM
Proceeds from disposition of property and equipment	41		—		41		NM
Acquisition of scil, net of cash acquired	—		(105,190)		105,190		NM
Net cash (used in) provided by investing activities	$	(13,387)	$	(119,926)	$	106,539	(88.8)	%

For the six months ended June 30, 2021 and June 30, 2020, cash flow from financing activities was $165.3 million and $123.0 million, respectively, which was the result of (in thousands):

	Six Months Ended June 30,				Change
	2021		2020		Dollar Change		% Change
Payment of preferred stock issuance costs	$	(314)	$	(214)	$	(100)	46.7	%
Preferred stock proceeds	—		122,000		(122,000)		NM
Proceeds from issuance of common stock	167,198		1,514		165,684		10,943.5	%
Repurchases of common stock (stock received for options in lieu of cash)	(932)		(610)		(322)		52.8	%
Repayments of other debt	(653)		(109)		(544)		499.1	%
Borrowings on other debts	—		410		(410)		NM
Net cash provided by (used in) financing activities	$	165,299	$	122,991	$	42,308	34.4	%

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 I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. 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.

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Effect of currency translation on cash

Net effect of foreign currency translations on cash was a $0.2 million negative impact for the six months ended June 30, 2021 and a $0.2 million positive impact for the six months ended June 30, 2020, which represents a decrease of $0.4 million. 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 June 30, 2021, the Company had purchase obligations for inventory of $48.1 million. Refer to Note 6. Leases in our Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q for a summary of lease obligations.

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, 2020, 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, 2020, 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, 2020.

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.

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Changes in Internal Control over Financial Reporting

On April 1, 2020, we acquired scil animal care company GmbH, as more fully described in Note 3. Acquisitions and Related Party Items in our Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q. During the initial transition period following the acquisition, we enhanced our internal control process to ensure that all financial information related to this acquisition was properly reflected in our consolidated financial statements. As of June 30, 2021, the integration of the internal controls relating to the acquired business has been substantially completed and the acquired business will be included in our evaluation of the effectiveness of our internal control over financial reporting for fiscal year 2021. There have been no other changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

We are involved in various legal proceedings that arise from time to time in the ordinary course of our business. We believe that the outcome of any of the proceedings should not have a material adverse effect on our financial position or long-term results of operations or cash flows.

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, 2020.

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 June 30, 2021:

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
April 2021	—	$	—	—	$	—
May 2021	—	$	—	—	$	—
June 2021	263	$	196.29	—	$	—
	263	$	196.29	—	$	—
(1) Shares of Public Common Stock we purchased between April 1, 2021 and June 30, 2021 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.
3.10	(10)	Amended and Restated Bylaws of the Registrant, as amended.
10.1**	(11)	Amended and Restated Employment Agreement dated June 8, 2021 by and between Registrant and Kevin Wilson.
10.2**		Heska Corporation Equity Incentive Plan, effective May 5, 2021.
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.
**	Indicates management contract or compensatory plan or arrangement.
(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.
(10)	Filed with the Registrant's Form 10-Q for the quarter ended June 30, 2019.
(11)	Filed with the Registrant’s Form 8-K on June 10, 2021.

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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 August 4, 2021.

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-10.2

Exhibit 10.2

HESKA CORPORATION

EQUITY INCENTIVE PLAN

Effective May 5, 2021

ARTICLE 1.

INTRODUCTION

The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Restricted Stock Units, Options (which may constitute ISOs or NQOs), Stock Appreciation Rights, Performance-Based Awards, Other Cash-Based Awards, or Other Stock-Based Awards.

The Plan shall be governed by, and construed in accordance with, the laws of the State of Colorado (except its choice-of-law provisions).

ARTICLE 2.

ADMINISTRATION.

2.1    COMMITTEE COMPOSITION. The Plan shall be administered by the Committee. The Committee shall consist exclusively of two or more independent directors of the Company, who shall be appointed by the Board. The initial Committee shall be the Compensation Committee of the Board. In addition, the composition of the Committee shall satisfy such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 under the Exchange Act. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not satisfy the foregoing requirements, who may administer the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all terms of such Awards. In addition, to the fullest extent permitted by applicable law and subject to any limitations that may be established by the Board or the Committee, the Board or the Committee may delegate to one or more officers of the Company the authority to designate the individuals (other than such officer(s) or any individual considered an officer or director of the Company under Section 16 of the Exchange Act) among those eligible to receive Awards pursuant to the terms of the Plan, who will receive Awards under the Plan and the size of each such grant.

2.2    COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee may amend or modify any outstanding Awards in any manner to the extent the Committee would have had the authority under the Plan initially to make such Awards as so amended or modified. The Committee’s determinations under the Plan shall be final and binding on all persons.

2.3    INDEMNIFICATION. No member of the Board or the Committee, or any officer or employee of the Company or any Subsidiary or Affiliate thereof acting on behalf of the Board or the Committee, shall be personally liable for any action, omission, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary or Affiliate thereof acting on their behalf shall, to the maximum extent permitted by applicable law and the Company’s by-laws and governing documents, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.

2.4    BENEFICIARY DESIGNATIONS. If permitted by the Committee, a Participant under the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid in the event of the Participant’s

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death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s surviving spouse, or if none, to the Participant’s estate.

ARTICLE 3.

SHARES AVAILABLE FOR GRANTS.

3.1    BASIC LIMITATION. Common Shares issued pursuant to the Plan may be authorized but unissued Common Shares or treasury shares, or Common Shares reacquired by the Company in any manner. Subject to adjustment in accordance with Article 12, the number of Common Shares which may be issued pursuant to Awards granted under the Plan is 250,000 Common Shares plus the number of Common Shares that remain available for grant under the Prior Plans as of May 5, 2021. The aggregate number of Common Shares that may be issued pursuant to the exercise of ISOs granted under the Plan is 250,000, subject to adjustment in accordance with Article 12 to the extent such adjustment will not affect the status of any Option intended to qualify as an ISO.

3.2    ADDITIONAL SHARES.

(a)    Any Common Shares subject to an Award that is canceled, forfeited, settled in cash or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the Plan as Awards. Notwithstanding anything to the contrary contained herein, Common Shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such Common Shares are (i) tendered in payment of an Option, (ii) delivered or withheld by the Company to satisfy any tax withholding obligation, (iii) repurchased by the Company using the proceeds from an Option exercise, or (iv) subject to a Stock Appreciation Right that are not issued in connection with its stock settlement on exercise thereof.

(b)    Any Common Shares subject to an award granted under a Prior Plan that is canceled, forfeited, settled in cash or expires prior to exercise or realization, either in full or in part, shall become available for issuance under the Plan as Awards. Notwithstanding anything to the contrary contained herein, Common Shares subject to an award granted under a Prior Plan shall not be made available for issuance or delivery under the Plan if such Common Shares are (i) tendered in payment of an option granted under a Prior Plan, (ii) delivered or withheld by the Company to satisfy any tax withholding obligation with respect to any award granted under a Prior Plan, (iii) repurchased by the Company using the proceeds from an option exercise; or (iv) subject to a stock appreciation right granted under a Prior Plan that are not issued in connection with its stock settlement on exercise thereof.

3.3    MINIMUM VESTING REQUIREMENTS. Except as otherwise provided in this Section 3.3, Awards granted under the Plan shall be subject to a minimum vesting period of one (1) year. Notwithstanding the foregoing, (a) such minimum vesting provision shall not apply to the accelerated vesting of an Award in the event of a Participant’s death or Disability or the occurrence of a Change in Control, and (b) the Committee may grant Awards covering five percent (5%) or fewer of the total number of Common Shares authorized under the Plan as set forth in Section 3.1 without regard to the above-described minimum vesting requirements. In addition, with respect to Awards made to Outside Directors, the vesting of such Awards will be deemed to satisfy the one (1)-year minimum vesting requirement to the extent that the Awards vest on the earlier of the one (1)-year anniversary of the date of grant and the next regular annual meeting of the Company’s stockholders that is at least fifty (50) weeks after the immediately preceding year’s annual meeting.

3.4    LIMITATION ON OUTSIDE DIRECTOR COMPENSATION. Notwithstanding anything herein to the contrary, compensation paid to an Outside Director in respect of his or her service as an Outside Director, including cash fees and Awards under the Plan (based on the grant date Fair Market Value of such Awards for financial reporting purposes), shall not exceed $300,000 per fiscal year. For the avoidance of doubt, compensation shall be counted toward this limit for the Board compensation year in which it is earned (and not when it is paid or settled in the event that it is deferred).

3.5    ASSUMPTION UNDER THE PLAN OF AWARDS; SUBSTITUTE AWARDS. Notwithstanding any other provision of the Plan, the Board or the Committee, in its discretion, may authorize the assumption and continuation

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under the Plan of outstanding and unexercised stock options or other types of stock-based awards that were granted under an equity plan or agreement that is or was maintained by a corporation or other entity that was merged into, consolidated with, or whose stock or assets were acquired by, the Company as the surviving corporation. Any such action will be upon such terms and conditions as the Board or the Committee, in its discretion, may deem appropriate, including provisions to preserve the holder’s rights under the previously granted and unexercised award. The exercise price and number of shares for any such stock options shall be determined in accordance with the principles of Sections 409A and 424(a) of the Code. Any such assumption and continuation of any such previously granted and unexercised award will be treated as an outstanding Award under the Plan, but will not count against the number of Shares reserved for issuance pursuant to Section 3.1. In addition, any Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company will not reduce the Shares available for grants as provided in Section 3.1.

ARTICLE 4.

ELIGIBILITY.

4.1    AWARDS OTHER THAN ISOS. Employees, Outside Directors and Consultants shall be eligible for the grant of Awards other than ISOs.

4.2    INCENTIVE STOCK OPTIONS. Only Employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.

ARTICLE 5.

OPTIONS.

5.1    STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be evidenced by an Award Agreement between the Participant and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Award Agreement shall specify whether the Option is an ISO or an NQO. The provisions of the various Award Agreements entered into under the Plan need not be identical.

5.2    NUMBER OF SHARES. Each Award Agreement shall specify the number of Common Shares subject to the Option and such number shall be subject to adjustment in accordance with Article 12 hereof.

5.3    EXERCISE PRICE. Each Award Agreement shall specify the Exercise Price; provided that the Exercise Price under an Option shall in no event be less than one-hundred percent (100%) of the Fair Market Value of a Common Share on the date of grant.

5.4    INCENTIVE STOCK OPTIOINS. The grant of ISOs shall be subject to all of the requirements of Code Section 422, including the following limitations:

(a)    The Exercise Price of an ISO shall not be less than one-hundred percent (100%) of the Fair Market Value of a Common Share on the date of grant; provided, however, if on the date of grant, the Employee (together with persons whose stock ownership is attributed to the Employee pursuant to Code Section 424(d)) owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries (a “10% Stockholder”), the Exercise Price shall not be less than one-hundred and ten percent (110%) of the Fair Market Value of a Common Share on the date of grant.

(b)    To the extent that the aggregate Fair Market Value of the Common Shares with respect to which ISOs are exercisable for the first time by any individual during any calendar year (under all plans of the Company) exceeds $100,000, such Options will be treated as NQOs to the extent required by Code Section 422. For purposes of this Section 5.4(b), ISOs shall be taken into account in the order in which they were granted. The Fair Market Value of the Common Shares shall be determined as of the time the Option with respect to such Common Shares is granted.

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(c)    In the event of a Participant’s change of status from Employee to Consultant or Outside Director, an ISO held by the Participant shall cease to be treated as an ISO and shall be treated for tax purposes as an NQO three (3) months and one (1) day following such change of status.

5.5    EXERCISABILITY. Each Award Agreement shall specify the date when all or any installment of the Option is to become exercisable. Each Award Agreement may also provide for accelerated exercisability of the Option in the event of the Participant’s death, Disability or Retirement or other events and may provide for expiration prior to the end of the Option’s term in the event of the termination of the Participant’s service. NQOs may also be awarded in combination with Restricted Shares, and such an Award may provide that the NQOs will not be exercisable unless the related Restricted Shares are forfeited.

5.6    OPTION TERM. Unless otherwise specified in an Award Agreement, but in any event, no later than ten (10) years from the date of grant thereof, each Option shall terminate no later than the first to occur of the following events:

(a)    Date in Award Agreement. The date for termination of the Option set forth in the Award Agreement;

(b)    Termination of Service. The ninetieth (90th) day following the date on which the Participant’s service terminates (other than for a reason described in Section 5.6(c) or (d) below);

(c)    Disability. In the event that a Participant’s service terminates due to the Participant’s Disability, the Participant may exercise his or her Option at any time within twelve (12) months following the date of such termination, but only to the extent that the Participant was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of the Option as set forth in the applicable Award Agreement). If, at the date of termination, the Participant is not entitled to exercise his or her entire Option, the Common Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Common Shares covered by such Option shall revert to the Plan;

(d)    Death. In the event of the death of a Participant, the Participant’s Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the applicable Award Agreement), by the Participant’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Participant was entitled to exercise the Option at the date of death. If, at the time of death, the Participant was not entitled to exercise his or her entire Option, the Common Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Participant’s estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Common Shares covered by such Option shall revert to the Plan; or

(e)    Ten Years from Grant. An Option shall expire no more than ten (10) years after the date of grant; provided, however, that if an ISO is granted to a 10% Stockholder, such ISO may not be exercised after the expiration of five (5) years from the date of grant.

5.7    EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company.

5.8    PROHIBITION ON REPRICINGS. Notwithstanding anything to the contrary contained herein and except as may be permitted under Section 3.5 hereof, the Board and the Committee may not, without stockholder approval, directly or indirectly reduce the exercise price of an outstanding Option or Stock Appreciation Right, including (i) changing the terms of an Option or Stock Appreciation Right to reduce the exercise price of such Option or Stock Appreciation Right; (ii) cancelling an Option or Stock Appreciation Right in exchange for a new Option or Stock Appreciation Right with a lower exercise price, (iii) cancelling an Option or Stock Appreciation Right in exchange for a different type of Award under the Plan that has a value that is greater than the excess of the Fair Market Value of the applicable shares on the date of such payment over the exercise price, (iv) authorizing, in lieu of the exercise or in exchange for the cancellation of an Option or Stock Appreciation Right, the payment of cash in an amount that is greater than the excess of the Fair Market Value of the Common Shares on the date of such payment over the

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exercise price, or (v) taking any other action that is treated as a “repricing” under generally accepted accounting principles, unless the cancellation and exchange occurs in connection with an adjustment permitted under Article 12.

5.9    PAYMENT FOR OPTION SHARES

.

(a)    General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except as follows:

(1)    In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Award Agreement. The Award Agreement may specify that payment may be made in any form(s) described in this Section 5.9.

(2)    In the case of an NQO, the Committee may at any time accept payment in any form(s) described in this Section 5.9.

(b)    Surrender of Stock. To the extent that this Section 5.9(b) is applicable, all or any part of the Exercise Price may be paid by surrendering Common Shares that are already owned by the Participant. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. The Participant shall not surrender Common Shares in payment of the Exercise Price if such action could cause the Company to recognize additional compensation expense with respect to the Option for financial reporting purposes under GAAP accounting at the time of such proposed surrender.

(c)    Exercise/Sale. To the extent that this Section 5.9(c) is applicable, all or any part of the Exercise Price may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company.

(d)    Other Forms of Payment. To the extent that this Section 5.9(d) is applicable, all or any part of the Exercise Price may be paid in any other form that is consistent with applicable laws, regulations and rules, including, without limitation, pursuant to a net exercise.

ARTICLE 6.

RESTRICTED SHARES.

6.1    TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be granted in the form of Restricted Shares. Restricted Shares may also be awarded in combination with NQOs, and such an Award may provide that the Restricted Shares will be forfeited in the event that the related NQOs are exercised. The Committee shall determine the eligible individuals to whom, and the time or times at which, grants of Restricted Shares shall be made; the number of Restricted Shares to be awarded; the period of restrictions, if any, applicable to Restricted Shares; the performance goals (if any) applicable to Restricted Shares; and all other conditions of the Restricted Shares. If the restrictions, performance goals and/or conditions established by the Committee are not attained, a Participant shall forfeit his or her Restricted Shares in accordance with the terms of the grant. The provisions of Restricted Shares need not be the same with respect to each Participant.

6.2    PAYMENT FOR AWARDS. To the extent that an Award is granted in the form of newly issued Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash, cash equivalents or any other form of legal consideration acceptable to the Company, including but not limited to future services, an amount equal to the par value of such Restricted Shares. To the extent that an Award is granted in the form of Restricted Shares from the Company’s treasury, no cash consideration shall be required of the Award recipients.

6.3    VESTING CONDITIONS. Each Award of Restricted Shares shall be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Award Agreement. An Award Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability or Retirement or other events. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine, at the time of

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granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company.

6.4    VOTING AND DIVIDEND RIGHTS. Unless otherwise provided in the Award Agreement, the holder of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders; provided, that to the extent that a Restricted Share carries with it a right to receive dividends, any dividends declared shall be accumulated and paid at the time (and to the extent) that the Restricted Shares vest, but in no event later than two-and-a-half (2.5) months following the end of the calendar year in which the vesting occurs. Without limitation, an Award Agreement may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares (in which case such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid).

ARTICLE 7.

RESTRICTED STOCK UNITS.

7.1    TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be granted in the form of Restricted Stock Units. Restricted Stock Units may be issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the eligible individuals to whom, and the time or times at which, grants of Restricted Stock Units shall be made; the number of Restricted Stock Units to be awarded; the period of restrictions, if any, applicable to Restricted Stock Units; the performance goals (if any) applicable to Restricted Stock Units; and all other conditions of the Restricted Stock Units. If the restrictions, performance goals and/or conditions established by the Committee are not attained, a Participant shall forfeit his or her Restricted Stock Units in accordance with the terms of the grant. The provisions of Restricted Stock Units need not be the same with respect to each Participant.

7.2    RESTRICTIONS AND CONDITIONS. Each Award of Restricted Stock Units shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Committee at the time of grant or, subject to Code Section 409A, thereafter:

(a)    Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Award Agreement.

(b)    An Award Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability or Retirement or other events. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine, at the time of granting Restricted Stock Units or thereafter, that all or part of such Restricted Stock Units shall become vested in the event that a Change in Control occurs with respect to the Company.

(c)    Participants holding Restricted Stock Units shall have no voting rights. A Restricted Stock Unit may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right would entitle the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Restricted Stock Unit is outstanding. The Committee, in its discretion, may grant dividend equivalents from the date of grant or only after a Restricted Stock Unit is vested. Notwithstanding anything herein to the contrary, to the extent that a Restricted Stock Unit carries with it rights to dividend equivalents, any dividend equivalents with respect to dividends declared shall be accumulated and paid at the time (and to the extent) that the Restricted Stock Units vest, but in no event later than two-and-a-half (2.5) months following the end of the calendar year in which the vesting occurs.

(d)    The rights of Participants granted Restricted Stock Units upon termination of employment or service as an Outside Director or Consultant of the Company or an Affiliate thereof terminates for any reason while the Restricted Stock Units remain outstanding shall be set forth in the Award Agreement.

7.3    RIGHTS AS A STOCKHOLDER. Except as may otherwise be provided in an Award Agreement with respect to dividend equivalents (in accordance with Section 7.2(c)), a Participant shall have no rights to dividends or any other rights of a stockholder with respect to the Common Shares subject to Restricted Stock Units until the Participant has satisfied all conditions of the Award Agreement and the requirements of Section 15.1, and the Common Shares have been issued to the Participant.

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7.4    SETTLEMENT OF RESTRICTED STOCK UNITS. Settlement of vested Restricted Stock Units shall be made to Participants in the form of Common Shares, unless the Committee, in its sole discretion, provides for the payment of the Restricted Stock Units in cash (or partly in cash and partly in Common Shares) equal to the Fair Market Value of the Common Shares that would otherwise be distributed to the Participant.

ARTICLE 8.

STOCK APPRECIATION RIGHTS.

8.1    IN GENERAL. Stock Appreciation Rights may be granted either alone (“Free Standing Rights”) or in conjunction with all or part of any Option granted under the Plan (“Related Rights”). Related Rights may be granted either at or after the time of the grant of such Option. The Committee shall determine the eligible individuals to whom, and the time or times at which, grants of Stock Appreciation Rights shall be made, the number of Common Shares to be awarded, the price per Common Share, and all other conditions of Stock Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Common Shares than are subject to the Option to which it relates and any Stock Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of a Common Share on the date of grant. The provisions of Stock Appreciation Rights need not be the same with respect to each Participant. Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 8.1 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable, as set forth in the applicable Award Agreement.

8.2    RIGHTS AS STOCKHOLDER. A Participant shall have no rights to dividends or any other rights of a stockholder with respect to the Common Shares subject to a Stock Appreciation Right until the Participant has given written notice of the exercise thereof, has satisfied the requirements of Section 15.1 and the Common Shares have been issued to the Participant.

8.3    EXERCISABILITY.

(a)    Stock Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee in the applicable Award Agreement.

(b)    Stock Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Article 5 and this Article 8.

(c)    An Award Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability or Retirement or other events. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine, at the time of granting Stock Appreciation Rights or thereafter, that all or part of such Stock Appreciation Rights shall become vested in the event that a Change in Control occurs with respect to the Company.

8.4    PAYMENT UPON EXERCISE.

(a)    Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Common Shares, determined using the Fair Market Value, equal in value to the excess of the Fair Market Value as of the date of exercise over the price per Common Share specified in the Free Standing Right multiplied by the number of Common Shares in respect of which the Free Standing Right is being exercised.

(b)    A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Common Shares, determined using the Fair Market Value, equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Common Shares in respect of which the Related Right is being exercised. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.

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(c)    Notwithstanding the foregoing, the Committee may determine to settle the exercise of a Stock Appreciation Right in cash (or in any combination of Common Shares and cash).

8.5    TERMINATION OF EMPLOYMENT OR SERVICE.

(a)    In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Free Standing Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee in the applicable Award Agreement.

(b)    In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.

8.6    TERM.

(a)    The term of each Free Standing Right shall be fixed by the Committee, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.

(b)    The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.

ARTICLE 9.

OTHER STOCK-BASED OR CASH-BASED AWARDS.

9.1    IN GENERAL. The Committee is authorized to grant Awards to Participants in the form of Other Stock‑Based Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Committee shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any performance goals and performance periods. Common Shares or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 9.1 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Common Shares, other Awards, notes or other property, as the Committee shall determine, subject to any required corporate action.

9.2    VESTING. An Award Agreement with respect to an Other Stock-Based Award or Other Cash-Based Award may provide for accelerated vesting in the event of the Participant’s death, Disability or Retirement or other events. Notwithstanding any other provision of the Plan to the contrary, the Committee may determine, at the time of granting an Other Stock-Based Award or Other Cash-Based Award or thereafter, that all or part of such Awards shall become vested in the event that a Change in Control occurs with respect to the Company.

ARTICLE 10.

PERFORMANCE-BASED AWARDS.

The Committee, in its discretion, may make Awards subject to vesting based on the achievement of performance goals (such awards, “Performance-Based Awards”), in which case the Committee will specify in writing, by resolution or otherwise, the Participants eligible to receive a Performance-Based Award (which may be expressed in terms of a class of individuals) and the performance goals applicable to Performance-Based Awards. The Committee may make Awards subject to the achievement of such performance goals as it determines in its sole discretion. The Committee also has the authority to provide in an Award for accelerated vesting of an Award based on the achievement of performance goals. In determining the actual amount of a Participant’s Performance-Based Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance-Based Award otherwise earned if, in its sole judgment, such reduction or elimination is appropriate.

ARTICLE 11

CLAWBACK

Notwithstanding any other provisions in this Plan to the contrary, any Award received by a Subject Participant, and/or any Common Share issued upon exercise of any Award received by a Subject Participant hereunder, and/or any

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amount received with respect to any sale of any such Award or Common Share, will be subject to potential cancellation, recoupment, rescission, payback or other action to the extent required pursuant to applicable law, government regulation or national securities exchange listing requirement (or any clawback policy adopted by the Company from time to time pursuant to any such law, government regulation or national securities exchange listing requirement or to comport with good corporate governance practices). Each Subject Participant agrees and consents to the Company’s application, implementation and enforcement of any clawback policy established by the Company that may apply to the Subject Participant and any provision of applicable law, government regulation or national securities exchange listing requirement relating to cancellation, rescission, payback or recoupment of compensation, and expressly agrees that the Company may take such actions as are necessary to effectuate any such policy (as applicable to the Subject Participant) or applicable law, government regulation or national securities exchange listing requirement without further consent or action being required by the Subject Participant.

ARTICLE 12

PROTECTION AGAINST DILUTION.

12.1    ADJUSTMENTS. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of (a) the number of Common Shares available for issuance pursuant to future Awards under Article 3, (b) the number of Common Shares covered by each outstanding Award or (c) the Exercise Price under each outstanding Option and Stock Appreciation Right. Except as provided in this Article 12, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.

12.2    DISSOLUTION OR LIQUIDATION. To the extent not previously exercised, Options shall terminate immediately prior to the dissolution or liquidation of the Company.

12.3    REORGANIZATIONS. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the continuation of outstanding Awards by the Company (if the Company is a surviving corporation), for their assumption by the surviving corporation or its parent or subsidiary, for the substitution by the surviving corporation or its parent or subsidiary of its own awards for such Awards, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.

ARTICLE 13.

AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Restricted Shares and shall, when issued, reduce the number of Common Shares available under Article 3.

ARTICLE 14.

LIMITATION ON RIGHTS.

14.1    RETENTION RIGHTS; NATURE OF PAYMENTS. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company’s certificate of incorporation and bylaws and a written employment agreement (if any). Any and all grants of Awards and issuances of Common Shares under the Plan shall be in consideration of services performed for the Company by the Participant. All such grants and issuances shall constitute a special incentive payment to the Participant and shall not be taken into account in computing the amount of salary or compensation of the Participant for the purpose of determining any benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of

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the Company or any Affiliate or under any agreement between the Company or any Affiliate and the Participant, unless such plan or agreement specifically otherwise provides.

14.2    STOCKHOLDERS' RIGHTS. Subject to the other terms and conditions of the Plan, a Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan.

14.3    REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

ARTICLE 15.

WITHHOLDING TAXES; PARACHUTE PAYMENTS.

15.1    GENERAL. To the extent provided by the terms of an Award Agreement and subject to the discretion of the Committee, the Participant may satisfy any federal, state, foreign or local tax withholding obligation relating to the exercise or acquisition of Common Shares under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company to withhold Common Shares from the Common Shares otherwise issuable to the Participant as a result of the exercise or acquisition of Common Shares under the Award, provided, however, that no Common Shares are withheld with a value exceeding the amount of tax required to be withheld by law (or, to the extent permitted by the Committee, such other greater amount up to the maximum statutory rate under applicable law, as applicable to such Participant, if such other greater amount would not result in adverse financial accounting treatment, as determined by the Committee (including in connection with the effectiveness of FASB Accounting Standards Update 2016-09)); or (c) delivering to the Company previously owned and unencumbered Common Shares. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied.

15.2    SECTION 280G.

(a)    To the extent that any of the payments and benefits provided for under the Plan or any other agreement or arrangement between the Company or its Affiliates and a Participant (collectively, the “Payments”) (i) constitute a “parachute payment” within the meaning of Code Section 280G and (ii) but for this paragraph would be subject to the excise tax imposed by Code Section 4999, then the Payments shall be payable either (i) in full or (ii) as to such lesser amount which would result in no portion of such Payments being subject to excise tax under Code Section 4999 (determined in accordance with the reduction of payments and benefits paragraph set forth below); whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Code Section 4999, results in the Participant’s receipt on an after-tax basis, of the greatest amount of benefits under this Plan, notwithstanding that all or some portion of such benefits may be taxable under Code Section 4999. Any determination required under this provision will be made by accountants chosen by the Company, whose determination shall be conclusive and binding upon the Participant and the Company for all purposes.

(b)    Except to the extent, if any, otherwise agreed in writing between a Participant and the Company, reduction of payments and benefits hereunder, if applicable, will be made by reducing, first, payments or benefits to be paid in cash in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order; provided, however, that any reduction or elimination of accelerated vesting of any equity award will first be accomplished by reducing or eliminating the vesting of such awards that are valued in full for purposes of Code Section 280G, then the reduction or elimination of vesting of other equity awards.

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ARTICLE 16.

AMENDMENT; TERM OF THE PLAN.

The Plan shall become effective on May 5, 2021. The Board may, at any time and for any reason, amend, suspend or terminate the Plan (subject to the approval of the Company’s stockholders only to the extent required by applicable law, regulations or the requirements of the securities exchange on which the Common Shares are listed). The Committee may issue ISOs under the Plan until February 18, 2031. The Committee may issue any Award other than ISOs at any time prior to the date, if any, that the Board suspends or terminates the Plan. No Award may be granted pursuant to the Plan after such date, but Awards granted before such date may extend beyond that date.

ARTICLE 17.

CODE SECTION 409A; UNFUNDED PLAN

17.1    CODE SECTION 409A. The intent of the parties is that payments and benefits under the Plan comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Code Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided upon a “separation from service” to a Participant who is a “specified employee” shall be paid on the first business day after the date that is six (6) months following the Participant’s separation from service (or upon the Participant’s death, if earlier). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitute deferred compensation subject to Code Section 409A, shall be construed as a separate identified payment for purposes of Code Section 409A. Nothing contained in the Plan or an Award Agreement shall be construed as a guarantee of any particular tax effect with respect to an Award. The Company does not guarantee that any Awards provided under the Plan will satisfy the provisions of Code Section 409A, and in no event will the Company be liable for any or all portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of any non-compliance with Code Section 409A.

17.2    UNFUNDED STATUS. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Shares or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Shares or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Shares or rights thereto to be granted under the Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Shares or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. None of the Company, the Board or the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. With respect to the Plan and any Awards granted hereunder, Participants are general and unsecured creditors of the Company and have no rights or claims except as otherwise provided in the Plan or any applicable Award Agreement.

ARTICLE 18.

AWARDS TO FOREIGN NATIONALS AND PARTICIPANTS OUTSIDE THE UNITED STATES

Notwithstanding any provision of the Plan to the contrary, in order to comply, or facilitate compliance, with the applicable law or customs in other countries in which the Company or any of its affiliates operates or has employees or to qualify for preferred tax treatment of such jurisdictions, the Committee, in its discretion, will have the power and authority to (a) determine which Affiliates will be covered by the Plan; (b) determine which persons employed outside the United States are eligible to participate in the Plan; (c) amend or vary the terms and provisions of the Plan and the terms and conditions of any Award granted to persons who reside outside the United States; (d) establish subplans and modify exercise procedures and terms and procedures to the extent such actions are deemed to be necessary or advisable; and (e) take any action, before or after an Award is made, that it deems advisable to obtain or comply with any applicable law or regulatory exemptions or approvals.

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ARTICLE 19.

GOVERNING LAW

This Plan, the Award Agreements and any other agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. Any reference in this Plan or in any Award Agreement or other agreement or document hereunder to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.

ARTICLE 20.

DEFINITIONS.

20.1Affiliate means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own, directly or indirectly, not less than fifty percent (50%) of such entity.

20.2    Award means any award of an Option, Restricted Share, Restricted Stock Unit, Stock Appreciation Right, Other Stock-Based Award or Other Cash-Based Award under the Plan.

20.3    Award Agreement means any agreement, contract or other instrument or document evidencing an Award. Evidence of an Award may be in written or electronic form, may be limited to notation on the books and records of the Company and, with the approval of the Committee, need not be signed by a representative of the Company or a Participant. Any Common Shares that become deliverable to a Participant pursuant to the Plan may be issued in certificate form in the name of the Participant or in book-entry form in the name of the Participant.

20.4    Board means the Company’s Board of Directors, as constituted from time to time.

20.5    Cause shall have the meaning assigned to such term in a Participant’s written employment, severance, or similar agreement or Award Agreement with the Company, or, if no such agreement exists or the agreement does not define “Cause,” Cause means a Participant’s termination of service by the Company due to the Participant’s (a) failure to perform his or her assigned duties or responsibilities as an Employee, Consultant or Outside Director of the Company or an Affiliate thereof (other than a failure resulting from the Participant’s Disability) after notice thereof from the Company describing his or her failure to perform such duties or responsibilities; (b) breach of any confidentiality agreement, invention assignment agreement or written restrictive covenant agreement between the Participant and the Company or an Affiliate thereof; (c) engagement in any act of dishonesty, fraud, misrepresentation, moral turpitude or misappropriation of material property that was or is materially injurious to the Company or its Affiliates; (d) violation of any written Company policy, including, without limitation, any policy with respect to sexual harassment in the workplace; (e) violation of any federal or state law or regulation applicable to the Company’s business; or (f) conviction of, or entrance of a plea of nolo contendere to, any crime. In addition, a Participant’s service shall be deemed to have terminated for “Cause” if, on the date the Participant’s service terminates, facts and circumstances exist that would have justified a termination for Cause, even if such facts and circumstances are discovered after such termination.

20.6    Change in Control shall mean:

(a)    The consummation of a merger or consolidation of the Company with or into another entity of any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation, or other reorganization;

(b)    The consummation of a sale, transfer or other disposition of all or substantially all of the Company’s assets;

(c)    A majority of the members of the Board are replaced during any eighteen (18) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or

(d)    Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than (i) the Company, (ii) a subsidiary thereof, (iii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary thereof, or (iv) any company owned, directly or indirectly,

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by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting securities.

20.7    Code means the Internal Revenue Code of 1986, as amended.

20.8    Committee means a committee of the Board, as described in Article 2.

20.9    Common Share means one share of common stock, par value $0.01 per share, of the Company.

20.10    Company means Heska Corporation, a Delaware corporation.

20.11    Consultant means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.2.

20.12    Disability shall have the meaning assigned to such term in a Participant’s written employment, severance, or similar agreement or Award Agreement with the Company, or, if no such agreement exists or the agreement does not define “Disability,” Disability means a Participant’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.

20.13    Employee means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.

20.14    Exchange Act means the Securities Exchange Act of 1934, as amended.

20.15    Exercise Price means, with respect to any Award under which the holder may purchase Common Shares, the price per Common Share at which a holder of such Award granted hereunder may purchase Common Shares issuable upon exercise of such Award, as specified in the applicable Award Agreement.

20.16    Fair Market Value means, for so long as the Common Shares are listed on any established stock exchange or a national market system, the value of a Common Share as determined by reference to the most recent reported sale price of a Common Share (or if no sales were reported, the most recent closing price) as quoted on such exchange or system at the time of determination. In the absence of an established market for the Common Shares, the Fair Market Value shall be determined in good faith by the Committee and such determination shall be conclusive and binding on all persons.

20.17    ISO means an incentive stock option described in Code Section 422(b).

20.18    NQO means a stock option not described in Code Sections 422 or 423.

20.19    Option means an ISO or NQO granted under the Plan and entitling the holder to purchase Common Shares.

20.20    Other Cash-Based Award means a cash Award granted to a Participant under Article 9, including cash awarded as a bonus or upon the attainment of performance goals or otherwise as permitted under the Plan.

20.21    Other Stock-Based Award means a right or other interest granted to a Participant under Article 9 that may be denominated or payable and valued in whole or in part by reference to, or otherwise based on or related to, Common Shares, including, but not limited to, unrestricted Common Shares or dividend equivalents, each of which may be subject to the attainment of performance goals or a period of continued employment or other terms or conditions as permitted under the Plan.

20.22    Outside Director shall mean a member of the Board who is not an Employee.

20.23    Parent means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation

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that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

20.24    Participant means an individual or estate who holds an Award.

20.25    Plan means this Heska Corporation Equity Incentive Plan, as amended from time to time.

20.26    Prior Plans means the Heska Corporation Stock Incentive Plan and the Heska Corporation 2003 Equity Incentive Plan.

20.27    Restricted Share means a Common Share awarded under the Plan. An Award of Restricted Shares constitutes a transfer of ownership of Common Shares to a Participant from the Company subject to restrictions against transferability, assignment and hypothecation. Under the terms of the Award, the restrictions against transferability are removed when the Participant has met the specified vesting requirement.

20.28    Restricted Stock Unit means a notional account established pursuant to an Award granted to a Participant, as described in Article 7, that is (i) valued solely by reference to Common Shares, (ii) subject to restrictions specified in the Award Agreement, and (iii) payable in cash or in Common Shares (as specified in the Award Agreement). The Restricted Stock Units awarded to the Participant will vest according to the time-based criteria or performance goal criteria specified in the Award Agreement.

20.29    Retirement shall mean a Participant’s termination of service with the Company (for any reason other than for Cause) on or after the attainment of age fifty-five (55) with at least ten (10) years of service with the Company and its Affiliates (including service with another company prior to it becoming an Affiliate).

20.30    Stock Appreciation Right means the right pursuant to an Award granted under Article 8 to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Common Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.

20.31    Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

20.32    Subject Participant means a Participant who is designated by the Board as an “executive officer” under the Exchange Act.

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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: August 4, 2021	/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: August 4, 2021	/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 June 30, 2021 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: August 4, 2021	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 June 30, 2021 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: August 4, 2021	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.

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Cover Page - shares	6 Months Ended
	Jun. 30, 2021	Aug. 02, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
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	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		10,645,363
Entity Central Index Key	0001038133
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2021

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 245,153	$ 86,334
Accounts receivable, net of allowance for losses of $798 and $769, respectively	27,887	31,080
Inventories	41,204	40,037
Net investment in leases, current, net of allowance for losses of $136 and $192, respectively	5,394	4,794
Prepaid expenses	5,517	3,875
Other current assets	5,688	5,155
Total current assets	330,843	171,275
Property and equipment, net	34,296	35,542
Operating lease right-of-use assets	4,944	5,457
Goodwill	90,771	88,276
Other intangible assets, net	52,898	55,992
Deferred tax asset, net	17,845	5,694
Net investment in leases, non-current	17,384	15,789
Investments in unconsolidated affiliates	6,175	6,704
Related party convertible note receivable, net	6,776	6,671
Promissory note receivable from investee, net	8,846	0
Other non-current assets	8,588	8,439
Total assets	579,366	399,839
Current liabilities:
Accounts payable	14,581	15,119
Accrued liabilities	17,368	18,055
Operating lease liabilities, current	2,035	2,087
Deferred revenue, current, and other	7,497	6,854
Total current liabilities	41,481	42,115
Convertible note, non-current, net	83,824	48,459
Deferred revenue, non-current	4,074	4,667
Other long-term borrowings	119	554
Operating lease liabilities, non-current	3,404	3,858
Deferred tax liability	11,583	11,856
Other liabilities	1,115	1,277
Total liabilities	145,600	112,786
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 shares authorized, respectively, none issued or outstanding	0	0
Public common stock, $.01 par value, 13,250,000 shares authorized, 10,645,730 and 9,475,845 shares issued and outstanding, respectively	106	95
Additional paid-in capital	569,214	423,650
Accumulated other comprehensive income	10,638	14,169
Accumulated deficit	(146,192)	(150,861)
Total stockholders' equity	433,766	287,053
Total liabilities and stockholders' equity	$ 579,366	$ 399,839

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Allowance for doubtful accounts	$ 798	$ 769
Leases, allowance for doubtful accounts	$ 136	$ 192
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	13,250,000
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	13,250,000
Common stock, shares issued (in shares)	10,645,730	9,475,845
Common stock, shares outstanding (in shares)	10,645,730	9,475,845

XML

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenues [Abstract]
Revenue, net	$ 64,928	$ 45,712	$ 125,431	$ 76,366
Cost of revenue	37,656	27,847	72,689	45,053
Gross profit	27,272	17,865	52,742	31,313
Operating expenses:
Selling and marketing	12,449	9,583	23,356	16,963
Research and development	1,948	1,696	3,134	3,824
General and administrative	13,569	11,040	25,930	19,599
Total operating expenses	27,966	22,319	52,420	40,386
Operating (loss) income	(694)	(4,454)	322	(9,073)
Interest and other expense, net	581	2,145	1,106	4,343
Loss before income taxes and equity in losses of unconsolidated affiliates	(1,275)	(6,599)	(784)	(13,416)
Income tax expense (benefit):
Current income tax expense	36	31	677	56
Deferred income tax benefit	(1,087)	(243)	(3,294)	(1,776)
Total income tax benefit	(1,051)	(212)	(2,617)	(1,720)
Net (loss) income before equity in losses of unconsolidated affiliates	(224)	(6,387)	1,833	(11,696)
Equity in losses of unconsolidated affiliates	(343)	(87)	(529)	(217)
Net (loss) income after equity in losses of unconsolidated affiliates	(567)	(6,474)	1,304	(11,913)
Net loss attributable to redeemable non-controlling interest	0	(117)	0	(268)
Net (loss) income attributable to Heska Corporation	$ (567)	$ (6,357)	$ 1,304	$ (11,645)
Earnings Per Share [Abstract]
Basic (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.06)	$ (0.72)	$ 0.13	$ (1.43)
Diluted (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.06)	$ (0.72)	$ 0.13	$ (1.43)
Weighted average outstanding shares used to compute basic (loss) earnings per share attributable to Heska Corporation (in shares)	10,167	8,776	9,825	8,165
Weighted average outstanding shares used to compute diluted (loss) earnings per share attributable to Heska Corporation (in shares)	10,167	8,776	10,189	8,165

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Net income (loss) after equity in losses from unconsolidated affiliates	$ (567)	$ (6,474)	$ 1,304	$ (11,913)
Other comprehensive income (loss):
Translation adjustments and gains (losses) from intra-entity transactions	1,852	2,216	(3,531)	1,860
Comprehensive income (loss)	1,285	(4,258)	(2,227)	(10,053)
Comprehensive loss attributable to redeemable non-controlling interest	0	(117)	0	(268)
Comprehensive income (loss) attributable to Heska Corporation	$ 1,285	$ (4,141)	$ (2,227)	$ (9,785)

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ 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, Adjustment	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, 2019				0	0	7,882	7,882
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	(11,645)												(11,645)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						24
Issuance of common stock, net of shares withheld for employee taxes	904					$ 0		904
Issuance of preferred stock, net of issuance costs (in shares)					122
Issuance of preferred stock, net of issuance costs	121,785				$ 1			121,784
Conversion of convertible securities (in shares)				122		1,509
Conversion of preferred stock to common stock	0			$ (1)		$ 15		(14)
Stock-based compensation	2,797							2,797
Other comprehensive income (loss)	1,860										1,860
Ending balance (in shares) at Jun. 30, 2020				0		9,415
Ending balance at Jun. 30, 2020	270,047			$ 0		$ 94		415,687			2,373		(148,107)
Beginning balance (in shares) at Mar. 31, 2020				122		7,843
Beginning balance at Mar. 31, 2020	270,638			$ 1		$ 78		412,152			157		(141,750)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	(6,357)												(6,357)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						63
Issuance of common stock, net of shares withheld for employee taxes	1,106					$ 1		1,105
Conversion of convertible securities (in shares)				122		1,509
Conversion of preferred stock to common stock	0			$ (1)		$ 15		(14)
Stock-based compensation	2,444							2,444
Other comprehensive income (loss)	2,216										2,216
Ending balance (in shares) at Jun. 30, 2020				0		9,415
Ending balance at Jun. 30, 2020	270,047			$ 0		$ 94		415,687			2,373		(148,107)
Beginning balance (in shares) at Dec. 31, 2020				0	0	9,476	9,476
Beginning balance at Dec. 31, 2020	287,053	$ (26,469)	$ 260,584	$ 0	$ 0	$ 95	$ 95	423,650	$ (29,834)	$ 393,816	14,169	$ 14,169	(150,861)	$ 3,365	$ (147,496)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	1,304												1,304
Issuance of common stock, net of shares withheld for employee taxes (in shares)						229
Issuance of common stock, net of shares withheld for employee taxes	1,766					$ 2		1,764
Issuance of preferred stock, net of issuance costs (in shares)						941
Issuance of preferred stock, net of issuance costs	164,186					$ 9		164,177
Stock-based compensation	9,457							9,457
Other comprehensive income (loss)	(3,531)										(3,531)
Ending balance (in shares) at Jun. 30, 2021				0		10,646
Ending balance at Jun. 30, 2021	433,766			$ 0		$ 106		569,214			10,638		(146,192)
Beginning balance (in shares) at Mar. 31, 2021				0		10,418
Beginning balance at Mar. 31, 2021	425,273			$ 0		$ 104		562,008			8,786		(145,625)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Heska Corporation	(567)												(567)
Issuance of common stock, net of shares withheld for employee taxes (in shares)						228
Issuance of common stock, net of shares withheld for employee taxes	1,588					$ 2		1,586
Stock-based compensation	5,620							5,620
Other comprehensive income (loss)	1,852										1,852
Ending balance (in shares) at Jun. 30, 2021				0		10,646
Ending balance at Jun. 30, 2021	$ 433,766			$ 0		$ 106		$ 569,214			$ 10,638		$ (146,192)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net income (loss) after equity in losses from unconsolidated affiliates	$ 1,304	$ (11,913)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization	6,680	4,704
Non-cash impact of operating leases	1,050	840
Deferred income tax benefit	(3,294)	(1,776)
Stock-based compensation	9,457	2,797
Equity in losses of unconsolidated affiliates	(529)	217
Accretion of discounts and issuance costs	35	3,049
Other losses	768	65
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable	3,046	(1,268)
Inventories	(4,080)	(4,094)
Other assets	(4,404)	(56)
Accounts payable	(334)	(2,732)
Other liabilities	(3,603)	(2,928)
Net cash provided by (used in) operating activities	7,154	(13,095)
Cash flows from investing activities:
Promissory note receivable issuance	(9,000)	0
Purchases of property and equipment	(546)	(316)
Proceeds from disposition of property and equipment	41	0
Net cash used in investing activities	(13,387)	(119,926)
Cash flows from financing activities:
Payment of stock issuance costs	(314)	(214)
Preferred stock proceeds	0	122,000
Proceeds from issuance of common stock	167,198	1,514
Repurchase of common stock	(932)	(610)
Repayments of other debt	(653)	(109)
Borrowings on other debts	0	410
Net cash provided by financing activities	165,299	122,991
Foreign exchange effect on cash and cash equivalents	(247)	189
Net increase (decrease) in cash and cash equivalents	158,819	(9,841)
Cash and cash equivalents, beginning of period	86,334	89,030
Cash and cash equivalents, end of period	245,153	79,189
Supplemental disclosure of cash flow information:
Non-cash transfers of equipment between inventory and property and equipment, net	2,562	1,560
Non-cash conversion of preferred stock to common stock	0	122,000
Consideration payable for scil acquisition	0	537
Contingent consideration for acquisition	1,700	0
Indemnity holdback for acquisition	370	0
CVM
Cash flows from investing activities:
Acquisition of CVM	0	(14,420)
Lacuna Diagnostics, Inc.
Cash flows from investing activities:
Acquisition of CVM	(3,882)	0
Scil Animal Care Company
Cash flows from investing activities:
Acquisition of CVM	$ 0	$ (105,190)

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OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2021

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; digital cytology 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 June 30, 2021, and the results of our operations and statements of stockholders' equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020.

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 six months ended June 30, 2021 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 year ended December 31, 2020 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. Beginning in the second quarter 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. During the fourth quarter of 2020 and into the first quarter of 2021, increased restrictions in countries in which we operate, mainly in the European Union, and certain parts of Canada and Australia, re-emerged. These restrictions lessened during the second quarter of 2021, however, with the rise in variants, the extent to which the continuation, or another 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, mainly in our ability to place new capital equipment, primarily under long-term contracts, as a result of any economic impact that 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 credit losses 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 and standalone selling prices 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 fair value of our embedded derivatives; and determining the value of the non-controlling interest in a business combination. 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, 2020, and other than the recently adopted accounting pronouncements described below have not changed materially since such filing.

Adoption of New Accounting Pronouncements

Effective January 1, 2021, we adopted 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we adopted 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, investments 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we early adopted 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 Company's 3.75% Convertible Senior Notes due 2026 (the "Notes") are a convertible instrument with a cash-conversion feature that is accounted for within the scope of ASC 470-20 and impacted by the adoption of ASU 2020-06. The Company has elected to apply the modified retrospective method wherein the Company recognized a cumulative-effect adjustment to the opening balance of retained earnings (January 1, 2021). Further, the Company will not restate EPS in prior periods. The Company calculated the cumulative-effect adjustment as of January 1, 2021 by comparing (i) the historical amortization schedule for the Notes through December 31, 2020 and (ii) an updated amortization schedule wherein the conversion feature within the Notes would not be separated as an equity component and subsequently recognized as non-cash interest expense under ASC 835-30. As a result of ASU 2020-06, while cash interest expense is not impacted, non-cash interest accretion is limited to the amortization of debt issuance costs under ASC 835-30. Therefore, the Company prepared its transition journal entries by (i) reversing the conversion feature amount recorded in APIC and (ii) reversing the difference in non-cash interest expense via retained earnings. The adoption resulted in a decrease to accumulated deficit of $3.4 million, a decrease to additional paid-in capital of $29.8 million, and an increase to convertible note, non-current, net of $35.2 million. Additionally, due to the adoption, the Company reversed the remaining balance of the net deferred tax liability of $8.8 million, which was initially recorded in connection with the Notes.

Effective January 1, 2021, we adopted ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC's regulations. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

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REVENUE

6 Months Ended

Jun. 30, 2021

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, currently consisting primarily of Australia, France, Germany, Italy, Malaysia, Spain and Switzerland

Refer to Note 18 for further detail regarding the Company's reportable segments.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
North America Revenue:
POC Lab Instruments & Other	$	3,482	$	2,962	$	6,470	$	5,578
POC Lab Consumables	19,296		13,537		36,248		27,223
POC Imaging	7,101		4,148		13,789		7,644
PVD	6,210		4,880		13,074		9,384
OVP	4,444		3,455		8,225		6,802
Total North America Revenue	$	40,533	$	28,982	$	77,806	$	56,631
International Revenue:
POC Lab Instruments & Other	$	3,987	$	2,206	$	7,001	$	2,440
POC Lab Consumables	11,935		9,470		24,159		10,032
POC Imaging	7,277		4,404		13,935		5,762
PVD	1,196		650		2,530		1,501
OVP	—		—		—		—
Total International Revenue	$	24,395	$	16,730	$	47,625	$	19,735
Total Revenue	$	64,928	$	45,712	$	125,431	$	76,366

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 noncancellable 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 obligations 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 June 30, 2021, the aggregate amount of the transaction price allocated to remaining minimum performance obligations was approximately $156.5 million. As of June 30, 2021, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2021 (remaining)	$	18,313
2022	35,463
2023	31,859
2024	27,220
2025	21,672
Thereafter	22,013
	$	156,540

Contract Balances

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

Contract Assets

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 June 30, 2021 were $1.4 million and $4.3 million for current and non-current assets, respectively, shown net of related unearned interest. The balances as of December 31, 2020 were $1.2 million and $4.1 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 June 30, 2021 and December 31, 2020, contract liabilities were $8.3 million and $8.9 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 six-month period ended June 30, 2021 is approximately $3.1 million of revenue recognized during the period, offset by approximately $2.5 million of additional deferred sales in 2021. 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

6 Months Ended

Jun. 30, 2021

Business Combinations and Related Party Disclosure [Abstract]

ACQUISITION AND RELATED PARTY ITEMS

ACQUISITIONS AND RELATED PARTY ITEMS

Lacuna Acquisition

On February 1, 2021, the Company completed the acquisition of Lacuna Diagnostics, Inc. ("Lacuna"), a veterinary digital cytology company, to broaden the Company's point of care diagnostic offerings. The Company acquired 100% of the issued and outstanding shares of Lacuna for a purchase price of $4.3 million. The Company then dissolved Lacuna on February 1, 2021. In accordance with the purchase agreement, the Company is required to hold a $0.4 million general indemnity holdback that is intended to provide a non-exclusive source of funds for the payment of any losses identified and shall be released within 18 months of closing. As of June 30, 2021, $0.4 million of the indemnification holdback remains outstanding. As additional consideration for the shares, the Company agreed to a contingent earn-out of an additional $2.0 million based on the achievement of certain performance metrics within a twelve month period ("Initial Earn Out Period"), reducing to $1.0 million if such metrics were met in a twelve month period subsequent to the Initial Earn Out Period. The fair value of the contingent consideration as of the acquisition date was $1.7 million.

The total purchase consideration exceeded the fair value of the identifiable net assets acquired, resulting in $3.9 million of goodwill, primarily related to expanded opportunities with our offerings. All of the goodwill is allocated to the North America segment and is not tax deductible for income tax purposes.

The acquisition was accounted for as a business combination in accordance with ASC 805. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of February 1, 2021.

The information below represents the preliminary purchase price allocation as of the acquisition date (in thousands):

	February 1, 2021
Purchase price	$	4,255
Fair value of contingent consideration	1,700
Total purchase consideration	$	5,955
Cash and cash equivalents	$	3
Accounts receivable	170
Property and equipment, net	530
Other intangible assets, net	1,185
Deferred tax asset	167
Total assets acquired	2,055
Goodwill	3,900
Total fair value of consideration transferred	$	5,955

The Company's preliminary estimates of fair values of the net assets acquired 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.

Intangible assets acquired, amortization method and estimated useful life as of February 1, 2021, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Developed technology	3 years	Straight-line	$	1,000
Customer relationships	6 months	Straight-line	150
Trade name	11 months	Straight-line	35
Total intangible assets acquired			$	1,185

Pro forma financial information related to the acquisition of Lacuna has not been provided as it is not material to our consolidated results of operations.

scil Acquisition

On April 1, 2020, the Company completed the acquisition of scil animal care company GmbH (“scil”) from Covetrus, Inc. The Company purchased 100% of the capital stock of scil for an aggregate price of $110.3 million in cash. 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 purchase price exceeded the identifiable net assets, resulting in goodwill of $46.0 million, primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the experienced workforce acquired. Of the goodwill acquired, $37.3 million is allocated to our International segment and $8.7 million is allocated to our North America segment. All of the goodwill is tax deductible for purposes of calculating Controlled Foreign Corporation tested income, which may result in a decrease to the Company's future U.S. federal tax liability.

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 their fair values as of April 1, 2020. The Company finalized the accounting for the acquisition as of March 31, 2021.

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

	April 1, 2020
Total purchase consideration	$	110,290
Cash and cash equivalents	$	5,889
Accounts receivable	10,707
Inventories	11,278
Net investment in lease, current	311
Prepaid expenses	1,692
Other current assets	1,338
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	97,302
Accounts payable	8,221
Accrued liabilities	7,067
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	13,249
Other liabilities	276
Net assets acquired	64,290
Goodwill	46,000
Total fair value of consideration transferred	$	110,290

Per the tax indemnification included in the purchase agreement of scil, the seller has indemnified the Company for $1.1 million related to uncertain tax positions taken in prior years. The outcome of this arrangement will either be settled or expire due to lapse of statute of limitations by 2027. As of June 30, 2021, approximately $0.4 million of the indemnification agreement remains outstanding.

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

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):

	Six Months Ended June 30, 2020
Revenue, net	$	94,917
Net (loss) income before equity in losses of unconsolidated affiliates	$	(12,512)
Net (loss) income attributable to Heska Corporation	$	(12,461)

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.

Other Related Party Activities

CVM Diagnostico Veternario S.L. and CVM Ecografia S.L. (“CVM”, collectively) conducted related party activities with Practice Clinicas Veterinarias Moviles, S.L. ("CVM Practice"), the owner of which was part of CVM management through June 1, 2021. CVM leases two warehouses from CVM Practice. CVM Practice charged CVM $16 thousand and $15 thousand during the six months ended June 30, 2021 and 2020, 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 $0.2 million as of both June 30, 2021 and December 31, 2020. CVM continues to lease the warehouses from CVM Practice, however the related party relationship was terminated as of June 1, 2021.

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES

6 Months Ended

Jun. 30, 2021

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):

	June 30, 2021		December 31, 2020
Equity method investment	$	3,157	$	3,686
Non-marketable equity security investment	3,018		3,018
Investments in unconsolidated affiliates	$	6,175	$	6,704

Equity Method Investment

On September 24, 2018, the Company invested approximately $5.1 million, including costs, to acquire an equity interest in a business as part of its product development strategy. As of June 30, 2021, the Company's 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

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company's total income tax benefit for our loss before income taxes were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,275)	$	(6,599)	$	(784)	$	(13,416)
Total income tax benefit	$	(1,051)	$	(212)	$	(2,617)	$	(1,720)

There were cash payments for income taxes of $0.7 million and $1.2 million for the three and six months ended June 30, 2021, respectively, and there were cash payments of $340 thousand and $347 thousand, respectively, for income taxes for the three and six months ended June 30, 2020. The Company’s tax benefit was $1.1 million and $2.6 million for the three and six months ended June 30, 2021, respectively, compared to the tax benefit of $0.2 million and $1.7 million for the three and six months ended June 30, 2020, respectively. The increase in tax benefit in the six month period is due to excess tax benefits recognized from employee stock compensation and a release in the partial valuation allowance further discussed below. The Company recognized $0.6 million in excess tax benefits related to employee share-based compensation for the three months ended June 30, 2021, compared to $0.2 million recognized for the three months ended June 30, 2020. The Company recognized $1.0 million in excess tax benefits related to employee share-based compensation for the six months ended June 30, 2021, compared to $0.5 million recognized for the six months ended June 30, 2020.

As of June 30, 2021, the Company had a deferred tax asset of approximately $9.4 million from net operating losses and tax credits and a net partial valuation allowance recorded against these deferred tax assets. During the current year, the Company forecasts the release of approximately $1.2 million of the partial valuation allowance through the annual effective tax rate used to estimate tax expense. The release is due to an increase in non-deductible executive compensation and capitalization of research and development expenses that results in the projected utilization of net operating losses in the current year. After the release, the net partial valuation allowance is forecasted to be approximately $3.2 million as of December 31, 2021.

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LEASES

6 Months Ended

Jun. 30, 2021

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	June 30, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets	$	4,944	$	5,457
Finance	Property and equipment, net	1,814		1,907
Total Leased Assets		$	6,758	$	7,364
Liabilities
Operating	Operating lease liabilities, current	$	2,035	$	2,087
	Operating lease liabilities, non-current	3,404		3,858
Finance	Deferred revenue, current, and other	235		295
	Other liabilities	278		261
Total Lease Liabilities		$	5,952	$	6,501

Lessor Accounting

The following table summarizes the profit recognized on the commencement date for sales-type leases and lease income for equipment-only operating leases (in thousands):

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	June 30, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets	$	4,944	$	5,457
Finance	Property and equipment, net	1,814		1,907
Total Leased Assets		$	6,758	$	7,364
Liabilities
Operating	Operating lease liabilities, current	$	2,035	$	2,087
	Operating lease liabilities, non-current	3,404		3,858
Finance	Deferred revenue, current, and other	235		295
	Other liabilities	278		261
Total Lease Liabilities		$	5,952	$	6,501

Lessor Accounting

The following table summarizes the profit recognized on the commencement date for sales-type leases and lease income for equipment-only operating leases (in thousands):

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2021

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 six months ended June 30, 2021 and 2020 (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net (loss) income attributable to Heska Corporation	$	(567)	$	(6,357)	$	1,304	$	(11,645)
Basic weighted-average common shares outstanding	10,167		8,776		9,825		8,165
Dilutive effect of stock options and restricted stock awards	—		—		364		—
Diluted weighted-average common shares outstanding	10,167		8,776		10,189		8,165
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)

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 June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Convertible preferred stock	—	332	—	920
Convertible Senior Notes	996	—	996	21
Stock options and restricted stock	374	355	6	299
	1,370	687	1,002	1,240

As more fully described in Note 16, the Notes are convertible under certain circumstances, as defined in the indenture, into a combination of cash and shares of the Company's common stock. As discussed in Note 1, the Company early adopted ASU 2020-06, effective January 1, 2021, which amends certain guidance on the computation of EPS for convertible instruments. Prior to the adoption of ASU 2020-06, the Company used the treasury stock method when calculating the potential dilutive effect of the conversion feature of the Notes on earnings per share, if any. Under ASU 2020-06, the treasury stock method is no longer available, and entities must apply the if-converted method for convertible instruments and the effect of potential share settlement must be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. To determine the dilutive effect to earnings per share using the if-converted method, interest expense on the outstanding Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and six months ended June 30, 2021, all of the potentially issuable shares with respect to the Notes were excluded from the calculation of diluted net earnings per share because the effect was anti-dilutive. The Company has elected to apply the modified retrospective method of adoption and will not restate EPS for the prior period.

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GOODWILL AND OTHER INTANGIBLES

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

GOODWILL AND OTHER INTANGIBLES

The following summarizes the change in goodwill during the six months ended June 30, 2021 (in thousands):

	North America		International		Total
Carrying amount, December 31, 2020	$	35,414	$	52,862	$	88,276
Goodwill attributable to acquisitions (subject to change)	3,900		—		3,900
Foreign currency adjustments	—		(1,405)		(1,405)
Carrying amount, June 30, 2021	$	39,314	$	51,457	$	90,771

Other intangibles consisted of the following (in thousands):

	June 30, 2021						December 31, 2020
	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	$	46,196	$	(8,878)	$	37,318	$	46,989	$	(6,436)	$	40,553
Developed technology	9,654		(2,278)		7,376		8,669		(1,696)		6,973
Trade names	230		(137)		93		197		(105)		92
Intangible assets not subject to amortization:
Trade names	8,111		—		8,111		8,374		—		8,374
Total intangible assets	$	64,191	$	(11,293)	$	52,898	$	64,229	$	(8,237)	$	55,992

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization expense	$	1,652	$	1,624	$	3,056	$	2,053

The remaining weighted-average amortization period for intangible assets is approximately 8.1 years.

Estimated amortization expense related to intangibles for each of the five years from 2021 (remaining) through 2025 and thereafter is as follows (in thousands):

Year Ending December 31,
2021 (remaining)	$	3,116
2022	6,111
2023	5,749
2024	5,306
2025	5,248
Thereafter	19,257
Total amortization related to finite-lived intangible assets	$	44,787
Indefinite-lived intangible assets	8,111
Net intangible assets	$	52,898

No triggering events were identified in the second quarter of 2021 to require additional impairment testing.

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PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT, NET

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

	June 30, 2021		December 31, 2020
Land	$	2,520	$	2,590
Building	12,439		12,737
Machinery and equipment	41,407		40,411
Office furniture and equipment	2,120		2,047
Computer hardware and software	5,102		4,773
Leasehold and building improvements	10,729		10,728
Construction in progress	61		4
Property and equipment, gross	74,378		73,290
Less accumulated depreciation	(40,082)		(37,748)
Total property and equipment, net	$	34,296	$	35,542

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 June 30, 2021 and December 31, 2020, was $14.9 million and $13.6 million, respectively, before accumulated depreciation of $5.1 million and $4.7 million, respectively.

Depreciation expense was $1.6 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and $3.5 million and $2.7 million for the six months ended June 30, 2021 and 2020, respectively.

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INVENTORIES, NET

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

INVENTORIES, NET

INVENTORIES

Inventories consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	12,798	$	14,454
Work in process	4,850		4,262
Finished goods	23,556		21,321
Total inventories	$	41,204	$	40,037

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

6 Months Ended

Jun. 30, 2021

Payables and Accruals [Abstract]

ACCRUED LIABILITIES

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Accrued payroll and employee benefits	$	6,458	$	7,949
Accrued property taxes	403		659
Accrued purchase orders	2,298		1,549
Accrued taxes	3,839		3,731
Other	4,370		4,167
Total accrued liabilities	$	17,368	$	18,055

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

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CAPITAL STOCK

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

CAPITAL STOCK

CAPITAL STOCK

During the six months ended June 30, 2021, the Company granted the following stock options, restricted stock awards, and restricted stock units:

	Six Months Ended June 30, 2021
	Options/Awards/Units Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	54,300	$	78.19
Restricted stock awards	203,369	$	196.48
Restricted stock units	6,000	$	172.11

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. 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 and restricted stock units related to service and/or company performance targets based on grant date fair value and will expense over the requisite service period when achievement of those conditions is deemed probable. For restricted stock awards and restricted stock units related to market conditions, we utilized a Monte Carlo simulation model to estimate grant date fair value and expense over the requisite period.

2021 Equity Offering

On March 5, 2021, the Company completed a public offering of 940,860 shares of common stock, $0.01 par value per share, at a public offering price of $186.00 per share. The Company received net proceeds of approximately $164.2 million after deducting underwriting discounts and commissions and issuance costs. The Company granted the underwriters an option to purchase up to an additional 141,129 shares of common stock from the Company at the offering price of $186.00 per share (less the underwriting discounts and commissions), within 30 days of the Prospectus Supplement dated March 2, 2021. The Company evaluated the accounting treatment of the option under ASC 815-40, Derivatives and Hedging - Contracts on an Entity's

Own Equity, and determined that it met the criteria for equity treatment thereunder. The underwriters’ option was not exercised and expired on April 1, 2021. The Company anticipates using the net proceeds of the offering for general corporate purposes, including working capital, further development and potential commercialization of current and future product initiatives, collaborations, and capital expenditures. The Company may also use a portion of the net proceeds of this offering to fund possible investments in or acquisitions of complementary businesses, products or technologies, or to repay indebtedness.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

	Pension Adjustments		Foreign Currency Translation1		Foreign Currency Gain (Loss) on Intra-Entity Transactions2		Total Accumulated Other Comprehensive Income
Balances at December 31, 2020	$	(386)	$	5,872	$	8,683	$	14,169
Current period other comprehensive loss	—		(1,206)		(2,325)		(3,531)
Balances at June 30, 2021	$	(386)	$	4,666	$	6,358	$	10,638

1 Foreign currency gains and losses related to translation of foreign subsidiary financial statements.

2 The Company has intercompany loans of a long-term investment nature that are denominated in a foreign currency. These transactions are considered to be of a long-term nature if settlement is not planned or anticipated in the foreseeable future.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2021

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 repair 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 $0.5 million and $0.5 million as of June 30, 2021 and December 31, 2020, 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. Additionally, the Company is indemnified by the scil acquisition agreement for this claim.

As of June 30, 2021, 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 $48.1 million as of June 30, 2021.

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INTEREST AND OTHER EXPENSE, NET

6 Months Ended

Jun. 30, 2021

Other Income and Expenses [Abstract]

INTEREST AND OTHER EXPENSE, NET

INTEREST AND OTHER EXPENSE, NET

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest income	$	(467)	$	(120)	$	(856)	$	(353)
Interest expense	922		2,333		1,842		4,679
Other expense (income), net	126		(68)		120		17
Total interest and other expense, net	$	581	$	2,145	$	1,106	$	4,343

Cash paid for interest for the three months ended June 30, 2021 and 2020 was $5 thousand and $4 thousand, respectively. Cash paid for interest for the six months ended June 30, 2021and 2020 was $1.6 million and $1.6 million, respectively.

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CONVERTIBLE NOTES AND CREDIT FACILITY

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

CONVERTIBLE NOTES AND CREDIT FACILITY

CONVERTIBLE NOTES

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, 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.

Refer to Note 16, Convertible Notes, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's 2020 Form 10-K for further information on the Notes.

No portion of the Notes was converted during the six months ended June 30, 2021 and the liability component was classified as long-term debt on the Company's Condensed Consolidated Balance Sheet as of June 30, 2021.

As discussed in Note 1, the Company early adopted ASU 2020-06, effective January 1, 2021, which simplifies the accounting for certain convertible instruments. Under the new standard, qualifying convertible debt is accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. As a result of ASU 2020-06, the Company's cash interest expense is not impacted, however, the Company's non-cash interest accretion is limited to the amortization of debt issuance costs under ASC 835-30. The new effective interest rate of the Notes post-adoption is 4.35%. The Company also reversed the conversion feature amount recorded in APIC and reversed the difference in non-cash interest expense via retained earnings.

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

	June 30, 2021		December 31, 2020
Principal amount of the Notes	$	86,250	$	86,250
Unamortized debt discount	(2,426)		(37,791)
Net carrying amount	$	83,824	$	48,459

Interest expense related to the Notes is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest expense related to contractual coupon interest	$	809	$	809	$	1,617	$	1,617
Interest expense related to amortization of the debt discount	103		1,524		205		3,049
	$	912	$	2,333	$	1,822	$	4,666

As of June 30, 2021, the remaining period over which the unamortized discount will be amortized is 63.0 months.

The estimated fair value of the Notes was $235.4 million and $156.9 million as of June 30, 2021 and December 31, 2020, 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 $229.73 on June 30, 2021, the if-converted value exceeded the aggregate principal amount of the Notes by $142.5 million.

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NOTE RECEIVABLES

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

NOTE RECEIVABLES

NOTE RECEIVABLES

Convertible Promissory Note

On December 9, 2020, the Company's equity method investee (the “Equity Method Investee”), issued a Convertible Promissory Note to the Company (the “Convertible Promissory Note”) with a principal amount of $6.65 million and a stated interest rate of 3.0% per annum that is payable monthly. The Convertible Promissory Note has a maturity date of December 9, 2023, or otherwise upon qualified redemption event or in the event of a default. Refer to Note 4 for additional information on our equity method investment.

The conversion of the Convertible Promissory Note is contingent upon certain events. Due to the convertible debt features included in the Convertible Promissory Note, it is not an equity security and is therefore not considered an additional investment in our Equity Method Investee. The Company accounted for the transaction as a note receivable, included in Related party convertible note receivable, net on the Consolidated Balance Sheets. The note receivable will be measured at amortized cost and evaluated for credit losses each reporting period. The Company determined that the redemption features described above met the definition of an embedded derivative that requires bifurcation from the note receivable host. The Company measured the redemption features at fair value, with the residual proceeds paid allocated to the note receivable host, creating a discount to the note receivable. The discount will be amortized over the contractual term of the Convertible Promissory Note using the effective interest method. The effective interest rate of the Convertible Promissory Note is 8.69%, and the amortization of the discount will be included as interest income within Interest and other expense, net on the Consolidated Statements of (Loss) Income.

The carrying value of the note receivable, included in Related party convertible note receivable, net on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	6,650	$	6,650
Unamortized discount	(828)		(977)
Net carrying amount	$	5,822	$	5,673

The fair value of the embedded derivative was $1.0 million as of June 30, 2021 and December 31, 2020, respectively, and is included in Related party convertible note receivable, net on the Consolidated Balance Sheets. The fair value of the derivative will be remeasured each reporting period, with the mark-to-market adjustment to be included in Interest and other expense, net on the Consolidated Statements of (Loss) Income. In addition, the Company recorded an allowance for expected credit losses on the promissory note of $33 thousand as of June 30, 2021.

Promissory Note

On February 1, 2021, one of the Company's equity investees (the "Investee"), which the Company accounts for as a non-marketable equity security, issued a Promissory Note to the Company (the “Promissory Note”) with a principal amount of $9.0 million and a stated interest rate of 10.0% per annum that is payable monthly. The Promissory Note has a maturity date of December 1, 2024 and provides for interest only payments through December 1, 2023. Beginning on January 1, 2024, the Promissory Note requires repayment of the principal and interest over twelve consecutive monthly payments. As additional consideration, the Company

was also issued a warrant to acquire securities of the Investee that expires December 31, 2034. Refer to Note 4 for additional information on our equity investments.

The Company evaluated the accounting treatment of the warrant to acquire securities and determined is a freestanding instrument that meets the definition of an embedded derivative under ASC 815 and requires bifurcation from the note receivable host. The Company measured the warrant at fair value, with the residual proceeds paid allocated to the note receivable host, creating a discount to the note receivable. The discount will be amortized over the contractual term of the Promissory Note using the effective interest method. The effective interest rate of the Promissory Note is 10.99%, and the amortization of the discount will be included as interest income within Interest and other expense, net on the Consolidated Statements of (Loss) Income.

The carrying value of the note receivable, included in Promissory note receivable from investee, net, on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	9,000	$	—
Unamortized discount	(283)		—
Net carrying amount	$	8,717	$	—

The fair value of the embedded derivative was $0.3 million at issuance and $0.4 million as of June 30, 2021, and is included in Other non-current assets on our Consolidated Balance Sheets. The fair value of the derivative will be remeasured each reporting period, with the mark-to-market adjustment to be included in other Interest and other expense, net on the Consolidated Statements of (Loss) Income. In addition, the Company recorded an allowance for expected credit losses on the note receivable of $0.3 million as of June 30, 2021.

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SEGMENT REPORTING

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

On April 1, 2020, Heska completed the acquisition of scil. Following this acquisition, the Company restructured its 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 the Company's operations in the United States, Canada and Mexico and the International segment is comprised of geographies outside of North America, which are the Company's 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. However, there are certain corporate expenses included in the North America segment that the Company does not allocate. Such expenses include research and development, certain selling, marketing, general, and administrative costs that support the global organization. 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 included in Part II. Item 8 of Heska's Annual Report on Form 10-K for the year ended December 31, 2019.

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 June 30, 2021 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 June 30, 2021	North America			International			Total
Total revenue	$	40,533		$	24,395		$	64,928
Cost of revenue	21,111			16,545			37,656
Gross profit	$	19,422		$	7,850		$	27,272
Gross margin	48		%	32		%	42		%
Operating income (loss)	$	130		$	(824)		$	(694)

Three Months Ended June 30, 2020	North America			International			Total
Total revenue	$	28,982		$	16,730		$	45,712
Cost of revenue	16,222			11,625			27,847
Gross profit	$	12,760		$	5,105		$	17,865
Gross margin	44		%	31		%	39		%
Operating loss	$	(3,067)		$	(1,387)		$	(4,454)

Six Months Ended June 30, 2021	North America			International			Total
Total revenue	$	77,806		$	47,625		$	125,431
Cost of revenue	40,875			31,814			72,689
Gross profit	$	36,931		$	15,811		$	52,742
Gross margin	47		%	33		%	42		%
Operating income (loss)	$	1,160		$	(838)		$	322

Six Months Ended June 30, 2020	North America			International			Total
Total revenue	$	56,631		$	19,735		$	76,366
Cost of revenue	31,368			13,685			45,053
Gross profit	$	25,263		$	6,050		$	31,313
Gross margin	45		%	31		%	41		%
Operating loss	$	(7,161)		$	(1,912)		$	(9,073)

Asset information by reportable segment as of June 30, 2021 is as follows (in thousands):

As of June 30, 2021	North America		International		Total
Total assets	$	418,842	$	160,524	$	579,366

Asset information by reportable segment as of December 31, 2020 is as follows (in thousands):

As of December 31, 2020	North America		International		Total
Total assets	$	238,550	$	161,289	$	399,839

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SUBSEQUENT EVENTS	6 Months Ended
	Jun. 30, 2021
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	SUBSEQUENT EVENTSOn July 1, 2021, the Company completed the acquisition of BiEsseA s.r.l., a veterinary reference lab based in Milan, Italy ("BiEsseA"). In exchange for all of the shares of BiEsseA, the Company paid total consideration of $4.7 million upon closing. The Company expects to account for this transaction as a business combination however, the Company does not have the accounting complete as of the date of this filing due to the limited time that has passed since the date of acquisition. As additional consideration for the shares of BiEsseA, the Company agreed to make a contingent earn-out payment of up to an additional $3.0 million based on the achievement of certain performance metrics during the next three years.

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OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2021

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 June 30, 2021, and the results of our operations and statements of stockholders' equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020.

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 six months ended June 30, 2021 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 year ended December 31, 2020 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. Beginning in the second quarter 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. During the fourth quarter of 2020 and into the first quarter of 2021, increased restrictions in countries in which we operate, mainly in the European Union, and certain parts of Canada and Australia, re-emerged. These restrictions lessened during the second quarter of 2021, however, with the rise in variants, the extent to which the continuation, or another 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, mainly in our ability to place new capital equipment, primarily under long-term contracts, as a result of any economic impact that 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 credit losses 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 and standalone selling prices 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 fair value of our embedded derivatives; and determining the value of the non-controlling interest in a business combination. Our actual results may differ from these estimates and there may be changes to those estimates in future periods.

Adoption of New Accounting Pronouncements

Adoption of New Accounting Pronouncements

Effective January 1, 2021, we adopted 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we adopted 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, investments 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. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Effective January 1, 2021, we early adopted 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 Company's 3.75% Convertible Senior Notes due 2026 (the "Notes") are a convertible instrument with a cash-conversion feature that is accounted for within the scope of ASC 470-20 and impacted by the adoption of ASU 2020-06. The Company has elected to apply the modified retrospective method wherein the Company recognized a cumulative-effect adjustment to the opening balance of retained earnings (January 1, 2021). Further, the Company will not restate EPS in prior periods. The Company calculated the cumulative-effect adjustment as of January 1, 2021 by comparing (i) the historical amortization schedule for the Notes through December 31, 2020 and (ii) an updated amortization schedule wherein the conversion feature within the Notes would not be separated as an equity component and subsequently recognized as non-cash interest expense under ASC 835-30. As a result of ASU 2020-06, while cash interest expense is not impacted, non-cash interest accretion is limited to the amortization of debt issuance costs under ASC 835-30. Therefore, the Company prepared its transition journal entries by (i) reversing the conversion feature amount recorded in APIC and (ii) reversing the difference in non-cash interest expense via retained earnings. The adoption resulted in a decrease to accumulated deficit of $3.4 million, a decrease to additional paid-in capital of $29.8 million, and an increase to convertible note, non-current, net of $35.2 million. Additionally, due to the adoption, the Company reversed the remaining balance of the net deferred tax liability of $8.8 million, which was initially recorded in connection with the Notes.

Effective January 1, 2021, we adopted ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC's regulations. We evaluated the impact of the standard on our consolidated financial statements and the adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
North America Revenue:
POC Lab Instruments & Other	$	3,482	$	2,962	$	6,470	$	5,578
POC Lab Consumables	19,296		13,537		36,248		27,223
POC Imaging	7,101		4,148		13,789		7,644
PVD	6,210		4,880		13,074		9,384
OVP	4,444		3,455		8,225		6,802
Total North America Revenue	$	40,533	$	28,982	$	77,806	$	56,631
International Revenue:
POC Lab Instruments & Other	$	3,987	$	2,206	$	7,001	$	2,440
POC Lab Consumables	11,935		9,470		24,159		10,032
POC Imaging	7,277		4,404		13,935		5,762
PVD	1,196		650		2,530		1,501
OVP	—		—		—		—
Total International Revenue	$	24,395	$	16,730	$	47,625	$	19,735
Total Revenue	$	64,928	$	45,712	$	125,431	$	76,366

Schedule of Timing of Revenue Expected to be Recognized

As of June 30, 2021, the Company expects to recognize revenue as follows (in thousands):

Year Ending December 31,	Revenue
2021 (remaining)	$	18,313
2022	35,463
2023	31,859
2024	27,220
2025	21,672
Thereafter	22,013
	$	156,540

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

6 Months Ended

Jun. 30, 2021

Business Combinations and Related Party Disclosure [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The information below represents the preliminary purchase price allocation as of the acquisition date (in thousands):

	February 1, 2021
Purchase price	$	4,255
Fair value of contingent consideration	1,700
Total purchase consideration	$	5,955
Cash and cash equivalents	$	3
Accounts receivable	170
Property and equipment, net	530
Other intangible assets, net	1,185
Deferred tax asset	167
Total assets acquired	2,055
Goodwill	3,900
Total fair value of consideration transferred	$	5,955

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

	April 1, 2020
Total purchase consideration	$	110,290
Cash and cash equivalents	$	5,889
Accounts receivable	10,707
Inventories	11,278
Net investment in lease, current	311
Prepaid expenses	1,692
Other current assets	1,338
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	97,302
Accounts payable	8,221
Accrued liabilities	7,067
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	13,249
Other liabilities	276
Net assets acquired	64,290
Goodwill	46,000
Total fair value of consideration transferred	$	110,290

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

Intangible assets acquired, amortization method and estimated useful life as of February 1, 2021, was as follows (dollars in thousands):

	Useful Life	Amortization Method	Fair Value
Developed technology	3 years	Straight-line	$	1,000
Customer relationships	6 months	Straight-line	150
Trade name	11 months	Straight-line	35
Total intangible assets acquired			$	1,185

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

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):

	Six Months Ended June 30, 2020
Revenue, net	$	94,917
Net (loss) income before equity in losses of unconsolidated affiliates	$	(12,512)
Net (loss) income attributable to Heska Corporation	$	(12,461)

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Tables)

6 Months Ended

Jun. 30, 2021

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):

	June 30, 2021		December 31, 2020
Equity method investment	$	3,157	$	3,686
Non-marketable equity security investment	3,018		3,018
Investments in unconsolidated affiliates	$	6,175	$	6,704

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INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Schedule of components of income tax expense

The Company's total income tax benefit for our loss before income taxes were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Loss before income taxes and equity in losses of unconsolidated affiliates	$	(1,275)	$	(6,599)	$	(784)	$	(13,416)
Total income tax benefit	$	(1,051)	$	(212)	$	(2,617)	$	(1,720)

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LEASES (Tables)

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Assets and Liabilities, Lessee

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

Leases	Balance Sheet Location	June 30, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets	$	4,944	$	5,457
Finance	Property and equipment, net	1,814		1,907
Total Leased Assets		$	6,758	$	7,364
Liabilities
Operating	Operating lease liabilities, current	$	2,035	$	2,087
	Operating lease liabilities, non-current	3,404		3,858
Finance	Deferred revenue, current, and other	235		295
	Other liabilities	278		261
Total Lease Liabilities		$	5,952	$	6,501

Sales-type Lease, Lease Income

The following table summarizes the profit recognized on the commencement date for sales-type leases and lease income for equipment-only operating leases (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Sales-type lease revenue	$	3,414	$	1,298	$	5,157	$	2,587
Sales-type lease cost of revenue	2,717		908		3,977		1,776
Profit recognized at commencement for sales-type leases	$	697	$	390	$	1,180	$	811
Operating lease income	$	543	$	430	$	1,150	$	430

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2021

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 six months ended June 30, 2021 and 2020 (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net (loss) income attributable to Heska Corporation	$	(567)	$	(6,357)	$	1,304	$	(11,645)
Basic weighted-average common shares outstanding	10,167		8,776		9,825		8,165
Dilutive effect of stock options and restricted stock awards	—		—		364		—
Diluted weighted-average common shares outstanding	10,167		8,776		10,189		8,165
Basic (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)
Diluted (loss) earnings per share attributable to Heska Corporation	$	(0.06)	$	(0.72)	$	0.13	$	(1.43)

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 June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Convertible preferred stock	—	332	—	920
Convertible Senior Notes	996	—	996	21
Stock options and restricted stock	374	355	6	299
	1,370	687	1,002	1,240

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GOODWILL AND OTHER INTANGIBLES (Tables)

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The following summarizes the change in goodwill during the six months ended June 30, 2021 (in thousands):

	North America		International		Total
Carrying amount, December 31, 2020	$	35,414	$	52,862	$	88,276
Goodwill attributable to acquisitions (subject to change)	3,900		—		3,900
Foreign currency adjustments	—		(1,405)		(1,405)
Carrying amount, June 30, 2021	$	39,314	$	51,457	$	90,771

Schedule of other intangible assets

Other intangibles consisted of the following (in thousands):

	June 30, 2021						December 31, 2020
	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	$	46,196	$	(8,878)	$	37,318	$	46,989	$	(6,436)	$	40,553
Developed technology	9,654		(2,278)		7,376		8,669		(1,696)		6,973
Trade names	230		(137)		93		197		(105)		92
Intangible assets not subject to amortization:
Trade names	8,111		—		8,111		8,374		—		8,374
Total intangible assets	$	64,191	$	(11,293)	$	52,898	$	64,229	$	(8,237)	$	55,992

Schedule of amortization expense on intangible assets

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization expense	$	1,652	$	1,624	$	3,056	$	2,053

Schedule of estimated future amortization expense

Estimated amortization expense related to intangibles for each of the five years from 2021 (remaining) through 2025 and thereafter is as follows (in thousands):

Year Ending December 31,
2021 (remaining)	$	3,116
2022	6,111
2023	5,749
2024	5,306
2025	5,248
Thereafter	19,257
Total amortization related to finite-lived intangible assets	$	44,787
Indefinite-lived intangible assets	8,111
Net intangible assets	$	52,898

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PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2021

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

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

	June 30, 2021		December 31, 2020
Land	$	2,520	$	2,590
Building	12,439		12,737
Machinery and equipment	41,407		40,411
Office furniture and equipment	2,120		2,047
Computer hardware and software	5,102		4,773
Leasehold and building improvements	10,729		10,728
Construction in progress	61		4
Property and equipment, gross	74,378		73,290
Less accumulated depreciation	(40,082)		(37,748)
Total property and equipment, net	$	34,296	$	35,542

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INVENTORIES, NET (Tables)

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

Schedule of inventory

Inventories consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Raw materials	$	12,798	$	14,454
Work in process	4,850		4,262
Finished goods	23,556		21,321
Total inventories	$	41,204	$	40,037

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ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2021

Payables and Accruals [Abstract]

Schedule of accrued liabilities

Accrued liabilities consisted of the following (in thousands):

	June 30, 2021		December 31, 2020
Accrued payroll and employee benefits	$	6,458	$	7,949
Accrued property taxes	403		659
Accrued purchase orders	2,298		1,549
Accrued taxes	3,839		3,731
Other	4,370		4,167
Total accrued liabilities	$	17,368	$	18,055

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CAPITAL STOCK (Tables)

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Schedule of stock options plans

During the six months ended June 30, 2021, the Company granted the following stock options, restricted stock awards, and restricted stock units:

	Six Months Ended June 30, 2021
	Options/Awards/Units Granted	Weighted-Average Grant Date Fair Value (per option/award)
Stock options	54,300	$	78.19
Restricted stock awards	203,369	$	196.48
Restricted stock units	6,000	$	172.11

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

Schedule of accumulated other comprehensive income (loss)

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

	Pension Adjustments		Foreign Currency Translation1		Foreign Currency Gain (Loss) on Intra-Entity Transactions2		Total Accumulated Other Comprehensive Income
Balances at December 31, 2020	$	(386)	$	5,872	$	8,683	$	14,169
Current period other comprehensive loss	—		(1,206)		(2,325)		(3,531)
Balances at June 30, 2021	$	(386)	$	4,666	$	6,358	$	10,638

1 Foreign currency gains and losses related to translation of foreign subsidiary financial statements.

2 The Company has intercompany loans of a long-term investment nature that are denominated in a foreign currency. These transactions are considered to be of a long-term nature if settlement is not planned or anticipated in the foreseeable future.

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INTEREST AND OTHER EXPENSE, NET (Tables)

6 Months Ended

Jun. 30, 2021

Other Income and Expenses [Abstract]

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest income	$	(467)	$	(120)	$	(856)	$	(353)
Interest expense	922		2,333		1,842		4,679
Other expense (income), net	126		(68)		120		17
Total interest and other expense, net	$	581	$	2,145	$	1,106	$	4,343

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CONVERTIBLE NOTES AND CREDIT FACILITY (Tables)

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Convertible Debt

	June 30, 2021		December 31, 2020
Principal amount of the Notes	$	86,250	$	86,250
Unamortized debt discount	(2,426)		(37,791)
Net carrying amount	$	83,824	$	48,459

Interest Income and Interest Expense Disclosure

Interest expense related to the Notes is comprised of the amortization of debt discount and debt issuance costs and the contractual coupon interest as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest expense related to contractual coupon interest	$	809	$	809	$	1,617	$	1,617
Interest expense related to amortization of the debt discount	103		1,524		205		3,049
	$	912	$	2,333	$	1,822	$	4,666

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NOTE RECEIVABLES (Tables)

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Schedule of Related Party Transactions

The carrying value of the note receivable, included in Related party convertible note receivable, net on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	6,650	$	6,650
Unamortized discount	(828)		(977)
Net carrying amount	$	5,822	$	5,673

The carrying value of the note receivable, included in Promissory note receivable from investee, net, on the Consolidated Balance Sheets, is as follows (in thousands):

	June 30, 2021		December 31, 2020
Principal amount	$	9,000	$	—
Unamortized discount	(283)		—
Net carrying amount	$	8,717	$	—

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SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Reconciliation of Revenue from Segments to Consolidated

Three Months Ended June 30, 2021	North America			International			Total
Total revenue	$	40,533		$	24,395		$	64,928
Cost of revenue	21,111			16,545			37,656
Gross profit	$	19,422		$	7,850		$	27,272
Gross margin	48		%	32		%	42		%
Operating income (loss)	$	130		$	(824)		$	(694)

Three Months Ended June 30, 2020	North America			International			Total
Total revenue	$	28,982		$	16,730		$	45,712
Cost of revenue	16,222			11,625			27,847
Gross profit	$	12,760		$	5,105		$	17,865
Gross margin	44		%	31		%	39		%
Operating loss	$	(3,067)		$	(1,387)		$	(4,454)

Six Months Ended June 30, 2021	North America			International			Total
Total revenue	$	77,806		$	47,625		$	125,431
Cost of revenue	40,875			31,814			72,689
Gross profit	$	36,931		$	15,811		$	52,742
Gross margin	47		%	33		%	42		%
Operating income (loss)	$	1,160		$	(838)		$	322

Six Months Ended June 30, 2020	North America			International			Total
Total revenue	$	56,631		$	19,735		$	76,366
Cost of revenue	31,368			13,685			45,053
Gross profit	$	25,263		$	6,050		$	31,313
Gross margin	45		%	31		%	41		%
Operating loss	$	(7,161)		$	(1,912)		$	(9,073)

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

Asset information by reportable segment as of June 30, 2021 is as follows (in thousands):

As of June 30, 2021	North America		International		Total
Total assets	$	418,842	$	160,524	$	579,366

Asset information by reportable segment as of December 31, 2020 is as follows (in thousands):

As of December 31, 2020	North America		International		Total
Total assets	$	238,550	$	161,289	$	399,839

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REVENUE (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) segment	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Number of reportable segments | segment			2
Revenue, net	$ 64,928	$ 45,712	$ 125,431	$ 76,366
Contract receivables, current	1,400		1,400		$ 1,200
Contract receivables, noncurrent	4,300		4,300		4,100
Current portion of deferred revenue, and other	8,300		8,300		$ 8,900
Contract liabilities, revenue recognized			3,100
Contract liabilities, increase due to additional deferred sales			2,500
North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	40,533	28,982	77,806	56,631
International | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	24,395	16,730	47,625	19,735
POC Lab Instruments & Other | North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	3,482	2,962	6,470	5,578
POC Lab Instruments & Other | International | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	3,987	2,206	7,001	2,440
POC Lab Consumables | North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	19,296	13,537	36,248	27,223
POC Lab Consumables | International | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	11,935	9,470	24,159	10,032
POC Imaging | North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	7,101	4,148	13,789	7,644
POC Imaging | International | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	7,277	4,404	13,935	5,762
PVD | North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	6,210	4,880	13,074	9,384
PVD | International | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	1,196	650	2,530	1,501
OVP | North America | Operating Segments
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue, net	4,444	3,455	8,225	6,802
OVP | International | Operating Segments
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	Jun. 30, 2021 USD ($)
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 156,540
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 18,313
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation	$ 35,463
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	$ 31,859
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	$ 27,220
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	$ 21,672
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	$ 22,013
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) $ in Thousands			6 Months Ended
	Feb. 01, 2021 USD ($)	Apr. 01, 2020 USD ($)	Jun. 30, 2021 USD ($) segment	Jun. 30, 2020 USD ($)	Feb. 21, 2021	Dec. 31, 2020 USD ($)
Business Acquisition [Line Items]
Goodwill			$ 90,771			$ 88,276
Operating lease right-of-use assets			$ 4,944			5,457
Affiliated Entity | CVM Practice
Business Acquisition [Line Items]
Number of warehouses | segment			2
Operating Lease, Payments			$ 16	$ 15
Operating lease right-of-use assets			200			200
Operating Lease, Liability			200			$ 200
Lacuna Diagnostics, Inc.
Business Acquisition [Line Items]
Percentage of voting interest acquired					100.00%
Cash consideration transferred	$ 4,255
Business combination, indemnification liabilities, holdback	$ 400
Business combination, indemnification liabilities, holdback release period	18 months
Business combination, contingent consideration, liability	$ 2,000
Business acquisition, initial earn out period	12 months
Business combination, contingent consideration arrangements, liability performance reduction	$ 1,000
Fair value of contingent consideration	1,700
Goodwill	3,900
Purchase price	5,955
Lacuna Diagnostics, Inc. | North America
Business Acquisition [Line Items]
Goodwill	$ 3,900
Scil Animal Care Company
Business Acquisition [Line Items]
Percentage of voting interest acquired		100.00%
Goodwill		$ 46,000
Purchase price		110,290
Unrecognized tax benefits, decrease resulting from acquisition			$ 1,100
Scil Animal Care Company | North America
Business Acquisition [Line Items]
Goodwill		8,700
Scil Animal Care Company | International
Business Acquisition [Line Items]
Goodwill		$ 37,300

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ACQUISITION AND RELATED PARTY ITEMS - Fair Value of Assets and Liabilities at Lacuna Acquisition Date (Details) - USD ($) $ in Thousands	Feb. 01, 2021	Jun. 30, 2021	Dec. 31, 2020
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Goodwill		$ 90,771	$ 88,276
Lacuna Diagnostics, Inc.
Business Combination, Consideration Transferred, Including Equity Interest in Acquiree Held Prior to Combination [Abstract]
Cash consideration transferred	$ 4,255
Fair value of contingent consideration	1,700
Total purchase consideration	5,955
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Cash and cash equivalents	3
Accounts receivable	170
Property and equipment, net	530
Other intangible assets, net	1,185
Deferred tax asset	167
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets, Total	2,055
Goodwill	3,900
Total fair value of consideration transferred	$ 5,955

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ACQUISITION AND RELATED PARTY ITEMS - Intangible Assets Acquired, Amortization Method (Details) - USD ($) $ in Thousands	Feb. 01, 2021	Apr. 01, 2020	Jun. 30, 2021	Dec. 31, 2020
Business Acquisition [Line Items]
Gross Carrying Amount			$ 64,191	$ 64,229
Lacuna Diagnostics, Inc.
Business Acquisition [Line Items]
Gross Carrying Amount	$ 1,185
Scil Animal Care Company
Business Acquisition [Line Items]
Gross Carrying Amount		$ 44,517
Scil Animal Care Company | Trade name
Business Acquisition [Line Items]
Finite-lived intangible assets acquired		$ 7,556
Developed technology | Lacuna Diagnostics, Inc.
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	3 years
Finite-lived intangible assets acquired	$ 1,000
Customer relationships | Lacuna Diagnostics, Inc.
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	6 months
Finite-lived intangible assets acquired	$ 150
Customer relationships | Scil Animal Care Company
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		10 years
Finite-lived intangible assets acquired		$ 36,272
Trade name | Lacuna Diagnostics, Inc.
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	11 months
Finite-lived intangible assets acquired	$ 35
Trade name | Scil Animal Care Company
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		9 months 18 days
Finite-lived intangible assets acquired		$ 66
Internally developed software | Scil Animal Care Company
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		7 years
Finite-lived intangible assets acquired		$ 353
Backlog | Scil Animal Care Company
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		2 months 12 days
Finite-lived intangible assets acquired		$ 210
Non-compete agreements | Scil Animal Care Company
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		2 years
Finite-lived intangible assets acquired		$ 60

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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	Jun. 30, 2021	Dec. 31, 2020
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Less Noncontrolling Interest [Abstract]
Goodwill		$ 90,771	$ 88,276
Scil Animal Care Company
Business Combination, Consideration Transferred, Including Equity Interest in Acquiree Held Prior to Combination [Abstract]
Business combination, consideration transferred	$ 110,290
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	11,278
Net investment in lease, current	311
Prepaid expenses	1,692
Other current assets	1,338
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
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets, Total	97,302
Accounts payable	8,221
Accrued liabilities	7,067
Operating lease liabilities, current	356
Deferred revenue, current, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred revenue, non-current	13,249
Other liabilities	276
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net, Total	64,290
Goodwill	46,000
Total fair value of consideration transferred	$ 110,290

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ACQUISITION AND RELATED PARTY ITEMS - Unaudited Pro Forma Financial Information (Details) - Scil Animal Care Company $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($)
Business Acquisition [Line Items]
Revenue, net	$ 94,917
Net (loss) income before equity in losses of unconsolidated affiliates	(12,512)
Net (loss) income attributable to Heska Corporation	$ (12,461)

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INVESTMENTS IN UNCONSOLIDATED AFFILIATES (Details) - USD ($) $ in Thousands	Sep. 24, 2018	Aug. 08, 2018	Jun. 30, 2021	Dec. 31, 2020
Schedule of Equity Method Investments [Line Items]
Equity method investment			$ 3,157	$ 3,686
Non-marketable equity security investment			3,018	3,018
Investments			$ 6,175	$ 6,704
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		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2021
Income Tax Contingency [Line Items]
Income before income taxes	$ (1,275)	$ (6,599)	$ (784)	$ (13,416)
Total income tax benefit	(1,051)	(212)	(2,617)	(1,720)
Cash paid for income taxes	700	340	1,200	347
Excess tax benefits related to employee share-based compensation	600	$ 200	1,000	$ 500
Deferred tax assets, gross	9,400		9,400
Deferred tax assets, valuation allowance	$ 1,200		$ 1,200
Forecast
Income Tax Contingency [Line Items]
Deferred tax assets, valuation allowance					$ 3,200

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LEASES - Operating and Financing Lease Balances (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Leases [Abstract]
Operating lease right-of-use assets	$ 4,944	$ 5,457
Property and equipment, net	1,814	1,907
Total Leased Assets	6,758	7,364
Operating lease liabilities, current	2,035	2,087
Operating lease liabilities, non-current	3,404	3,858
Deferred revenue, current, and other	235	295
Other liabilities	278	261
Total Lease Liabilities	$ 5,952	$ 6,501

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LEASES - Sales-type Leases and Lease Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Leases [Abstract]
Sales-type lease revenue	$ 3,414	$ 1,298	$ 5,157	$ 2,587
Sales-type lease cost of revenue	2,717	908	3,977	1,776
Profit recognized at commencement for sales-type leases	697	390	1,180	811
Operating lease income	$ 543	$ 430	$ 1,150	$ 430

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Earnings Per Share [Abstract]
Net (loss) income attributable to Heska Corporation	$ (567)	$ (6,357)	$ 1,304	$ (11,645)
Basic weighted-average common shares outstanding (in shares)	10,167	8,776	9,825	8,165
Dilutive effect of stock options and restricted stock awards	0	0	364	0
Diluted weighted-average common shares outstanding	10,167	8,776	10,189	8,165
Basic (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.06)	$ (0.72)	$ 0.13	$ (1.43)
Diluted (loss) earnings per share attributable to Heska Corporation (in dollars per share)	$ (0.06)	$ (0.72)	$ 0.13	$ (1.43)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and restricted units excluded from computation of earnings per share	1,370	687	1,002	1,240
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	332	0	920
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	996	0	996	21
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	374	355	6	299

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GOODWILL AND OTHER INTANGIBLES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Goodwill [Roll Forward]
Carrying amount, December 31, 2020			$ 88,276
Goodwill attributable to acquisitions (subject to change)			3,900
Foreign currency adjustments			(1,405)
Carrying amount, June 30, 2021	$ 90,771		90,771
Finite-Lived Intangible Assets, Net [Abstract]
Accumulated amortization	(11,293)		(11,293)		$ (8,237)
Net carrying amount	44,787		44,787
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	8,111		8,111
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	64,191		64,191		64,229
Accumulated amortization	(11,293)		(11,293)		(8,237)
Net intangible assets	52,898		52,898		55,992
Amortization expense	1,652	$ 1,624	$ 3,056	$ 2,053
Remaining weighted average amortization period for intangible assets			8 years 1 month 6 days
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2021 (remaining)	3,116		$ 3,116
2022	6,111		6,111
2023	5,749		5,749
2024	5,306		5,306
2025	5,248		5,248
Thereafter	19,257		19,257
Net carrying amount	44,787		44,787
Indefinite-lived intangible assets	8,111		8,111
Net intangible assets	52,898		52,898		55,992
Trade name
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	8,111		8,111		8,374
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Indefinite-lived intangible assets	8,111		8,111		8,374
Customer relationships and other
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	46,196		46,196		46,989
Accumulated amortization	(8,878)		(8,878)		(6,436)
Net carrying amount	37,318		37,318		40,553
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(8,878)		(8,878)		(6,436)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	37,318		37,318		40,553
Developed technology
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	9,654		9,654		8,669
Accumulated amortization	(2,278)		(2,278)		(1,696)
Net carrying amount	7,376		7,376		6,973
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(2,278)		(2,278)		(1,696)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	7,376		7,376		6,973
Trade name
Finite-Lived Intangible Assets, Net [Abstract]
Gross carrying amount	230		230		197
Accumulated amortization	(137)		(137)		(105)
Net carrying amount	93		93		92
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Accumulated amortization	(137)		(137)		(105)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Net carrying amount	93		93		$ 92
Operating Segments | North America
Goodwill [Roll Forward]
Carrying amount, December 31, 2020			35,414
Goodwill attributable to acquisitions (subject to change)			3,900
Foreign currency adjustments			0
Carrying amount, June 30, 2021	39,314		39,314
Operating Segments | International
Goodwill [Roll Forward]
Carrying amount, December 31, 2020			52,862
Goodwill attributable to acquisitions (subject to change)			0
Foreign currency adjustments			(1,405)
Carrying amount, June 30, 2021	$ 51,457		$ 51,457

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 74,378		$ 74,378		$ 73,290
Less accumulated depreciation	(40,082)		(40,082)		(37,748)
Total property and equipment, net	34,296		34,296		35,542
Depreciation and amortization	1,600	$ 1,700	3,500	$ 2,700
Land
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,520		2,520		2,590
Building
Property, Plant and Equipment [Line Items]
Property and equipment, gross	12,439		12,439		12,737
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	41,407		41,407		40,411
Office furniture and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,120		2,120		2,047
Computer hardware and software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	5,102		5,102		4,773
Leasehold and building improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	10,729		10,729		10,728
Construction in progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	61		$ 61		4
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	14,900		$ 14,900		13,600
Less accumulated depreciation	$ (5,100)		$ (5,100)		$ (4,700)

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INVENTORIES, NET (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Raw materials	$ 12,798	$ 14,454
Work in process	4,850	4,262
Finished goods	23,556	21,321
Total inventory, net	$ 41,204	$ 40,037

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ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Payables and Accruals [Abstract]
Accrued payroll and employee benefits	$ 6,458	$ 7,949
Accrued property taxes	403	659
Accrued purchase orders	2,298	1,549
Accrued taxes	3,839	3,731
Other	4,370	4,167
Total accrued liabilities	$ 17,368	$ 18,055
Percentage of total current liabilities	5.00%

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CAPITAL STOCK - STOCK OPTIONS AND RESTRICTED STOCK (Details)	6 Months Ended
	Jun. 30, 2021 $ / shares shares
Options/Awards/Units Granted
Stock options (in shares) | shares	54,300
Weighted-Average Grant Date Fair Value (per option/award)
Stock options (in dollars per share) | $ / shares	$ 78.19
Restricted Stock
Options/Awards/Units Granted
Restricted stock awards (in shares) | shares	203,369
Weighted-Average Grant Date Fair Value (per option/award)
Restricted stock awards (in dollars per share) | $ / shares	$ 196.48
Restricted Stock Units (RSUs)
Options/Awards/Units Granted
Restricted stock awards (in shares) | shares	6,000
Weighted-Average Grant Date Fair Value (per option/award)
Restricted stock awards (in dollars per share) | $ / shares	$ 172.11

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CAPITAL STOCK - ADDITIONAL INFORMATION (Details) $ / shares in Units, $ in Millions	Mar. 05, 2021 USD ($) $ / shares shares
Equity Offering, 2021
Subsidiary, Sale of Stock [Line Items]
Sale of stock, number of shares issued in transaction (in shares) | shares	940,860
Common stock, par value (in dollars per share)	$ 0.01
Sale of stock, price per share (in dollars per share)	$ 186.00
Sale of stock, consideration received on transaction | $	$ 164.2
Over-Allotment Option
Subsidiary, Sale of Stock [Line Items]
Sale of stock, price per share (in dollars per share)	$ 186.00
Sale of stock, number of shares authorized (in shares) | shares	141,129
Sale of stock, over-allotment option period	30 days

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($)
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	$ 287,053
Ending balance	433,766
Total Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	14,169
Current period other comprehensive loss	(3,531)
Ending balance	10,638
Pension Adjustments
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	(386)
Current period other comprehensive loss	0
Ending balance	(386)
Foreign Currency Translation1
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	5,872
Current period other comprehensive loss	(1,206)
Ending balance	4,666
Foreign Currency Gain (Loss) on Intra-Entity Transactions2
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	8,683
Current period other comprehensive loss	(2,325)
Ending balance	$ 6,358

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions	Jun. 30, 2021	Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]
Warranty reserve	$ 0.5	$ 0.5
Unconditional annual minimum inventory purchases	$ 48.1

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INTEREST AND OTHER EXPENSE, NET (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Other Income and Expenses [Abstract]
Interest income	$ (467)	$ (120)	$ (856)	$ (353)
Interest expense	922	2,333	1,842	4,679
Other, net	126	(68)	120	17
Total interest and other expense, net	581	2,145	1,106	4,343
Cash paid for interest	$ 5	$ 4	$ 1,600	$ 1,600

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CONVERTIBLE NOTES AND CREDIT FACILITY - Convertible Notes Narrative (Details)		3 Months Ended		6 Months Ended
	Sep. 17, 2019 USD ($)	Jun. 30, 2021 USD ($) $ / shares	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) $ / shares	Jun. 30, 2020 USD ($)	Jan. 01, 2021	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
Debt instrument, convertible, remaining discount amortization period				63 months
Share price | $ / shares		$ 229.73		$ 229.73
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				$ 142,500,000
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%
Interest expense, debt		912,000	$ 2,333,000	1,822,000	$ 4,666,000
Convertible Debt | Senior Convertible Note | Accounting Standards Update 2020-06
Debt Instrument [Line Items]
Debt instrument, interest rate, effective percentage						4.35%
Fair Value, Inputs, Level 2 | Senior Convertible Note
Debt Instrument [Line Items]
Convertible debt, fair value		$ 235,400,000		$ 235,400,000			$ 156,900,000
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 ($)	Jun. 30, 2021	Dec. 31, 2020	Sep. 17, 2019
Debt Instrument [Line Items]
Aggregate principal amount	$ 86,250,000	$ 86,250,000	$ 86,250,000
Unamortized debt discount	(2,426,000)	(37,791,000)
Net carrying amount	$ 83,824,000	$ 48,459,000

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CONVERTIBLE NOTES AND CREDIT FACILITY - Interest Expense (Details) - Convertible Debt - Senior Convertible Note - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Debt Instrument [Line Items]
Interest expense related to contractual coupon interest	$ 809	$ 809	$ 1,617	$ 1,617
Interest expense related to amortization of the debt discount	103	1,524	205	3,049
Interest expense, debt	$ 912	$ 2,333	$ 1,822	$ 4,666

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NOTE RECEIVABLES - Additional Information (Details) - USD ($)			6 Months Ended
	Feb. 01, 2021	Dec. 09, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Debt Instrument [Line Items]
Principal amount			$ 9,000,000	$ 0
Equity Method Investee | Convertible Note Receivable
Debt Instrument [Line Items]
Principal amount		$ 6,650,000
Related party transaction, rate		3.00%
Related party transaction, effective interest rate		8.69%
Embedded derivative, fair value of embedded derivative asset			1,000,000.0		$ 1,000,000.0
Accounts and financing receivable, allowance for credit loss			33,000
Equity Method Investee | Notes Receivable
Debt Instrument [Line Items]
Principal amount	$ 9,000,000.0
Related party transaction, rate	10.00%
Related party transaction, effective interest rate	10.99%
Embedded derivative, fair value of embedded derivative asset	$ 300,000		400,000
Accounts and financing receivable, allowance for credit loss			$ 300,000

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NOTE RECEIVABLES (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Net carrying amount	$ 6,776	$ 6,671
Equity Method Investee | Convertible Note Receivable
Debt Instrument [Line Items]
Principal amount	6,650	6,650
Unamortized discount	(828)	(977)
Net carrying amount	5,822	5,673
Equity Method Investee | Notes Receivable
Debt Instrument [Line Items]
Principal amount	9,000	0
Unamortized discount	(283)	0
Net carrying amount	$ 8,717	$ 0

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SEGMENT REPORTING - NARRATIVE (Details)	6 Months Ended
	Jun. 30, 2021 segment
Segment Reporting [Abstract]
Number of reportable segments	2

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SEGMENT REPORTING (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	$ 64,928	$ 45,712	$ 125,431	$ 76,366
Cost of revenue	37,656	27,847	72,689	45,053
Gross profit	$ 27,272	$ 17,865	$ 52,742	$ 31,313
Gross margin	42.00%	39.00%	42.00%	41.00%
Operating income (loss)	$ (694)	$ (4,454)	$ 322	$ (9,073)
Total assets	579,366		579,366		$ 399,839
North America
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	40,533	28,982	77,806	56,631
Cost of revenue	21,111	16,222	40,875	31,368
Gross profit	$ 19,422	$ 12,760	$ 36,931	$ 25,263
Gross margin	48.00%	44.00%	47.00%	45.00%
Operating income (loss)	$ 130	$ (3,067)	$ 1,160	$ (7,161)
Total assets	418,842		418,842		238,550
International
Segment Reporting, Other Significant Reconciling Item [Line Items]
Total revenue	24,395	16,730	47,625	19,735
Cost of revenue	16,545	11,625	31,814	13,685
Gross profit	$ 7,850	$ 5,105	$ 15,811	$ 6,050
Gross margin	32.00%	31.00%	33.00%	31.00%
Operating income (loss)	$ (824)	$ (1,387)	$ (838)	$ (1,912)
Total assets	$ 160,524		$ 160,524		$ 161,289

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Subsequent Events (Details) - BiEsseA s.r.1. - Subsequent Event $ in Millions	Jul. 01, 2021 USD ($)
Subsequent Event [Line Items]
Business combination, consideration transferred	$ 4.7
Fair value of contingent consideration	$ 3.0
Business acquisition, initial earn out period	3 years