Neptune Wellness Solutions Inc (NEPT) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Neptune Technologies & Bioressources second-quarter fiscal year 2016 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to John Ripplinger, Investor Relations. Please go ahead.

Well, thank you, operator. And good morning, everyone, and thanks for joining us today. As mentioned, the purpose of today's call is to review our results for the second-quarter ended August 31, 2015.

Joining me today are Jim Hamilton, Neptune's President and CEO; Mario Paradis, Neptune and Acasti's CFO; and Pierre Lemieux, Chief Operating Officer of Acasti. Jim will review Neptune's operational highlights, followed by Mario, who will discuss the quarterly financial results. We'll then turn the call over to Pierre, who will go over Acasti's operational highlights. After this, we'll open up the line for questions, at which time all of the speakers will be available.

Before we begin, I want to remind you that all amounts are in Canadian dollars, and today's remarks contain forward-looking information that represents our expectations as of today, and accordingly are subject to change. We do not undertake any obligation to update any forward-looking information or statements except as may be required by Canadian and US security laws.

A number of assumptions were made by us in preparing these forward-looking statements, which are subject to risks. Results may differ materially. Details on these risks and assumptions can be found in our filings with the Canadian Securities Commission and with the Securities and Exchange Commission.

With that, I will turn the call over to Jim.

Thank you very much, John, and good morning, everybody. It's been a busy and exciting period for Neptune. And I'd like to start by discussing some of the positive milestones we have achieved to date.

Let me begin on what has clearly been one of our overriding objectives -- manufacturing. And I'm pleased to report that our Sherbrooke plant is now completely and fully operational. Product specifications and material handling characteristics are excellent and fully aligned with both our customer and our corporate expectations.

Our facilities now -- has now an effective capacity of over 150 metric tons annually. This is a significant improvement over the 100-plus metric tons we indicated at the end of the first quarter. And I'd like to thank the dedication and all the efforts of our team that's been making this happen -- who, by the way, are now entering the next project phase towards the further site efficiencies and capacity. I'm very encouraged by the potential here as a foundation to support our long-term growth.

As previously announced, we are also increasing our sales efforts to help ensure customer demand matches plant output. Fortunately, Neptune enjoys a strong customer and industry recognition, and we are actively reestablishing our market presence. Let me just say here that my personal belief is customers and sales is each and every one of our jobs here. And I've personally been with many of our customers of late, and I'm very encouraged to see the progress in the projects that we now have underway.

This is turning into higher sales, with second-quarter revenues coming in at CAD4.4 million. That's a 62% increase over the first quarter of this year and 67% over the second quarter of last year, and fully in line with our previous guidance. As well, our sales funnel is robust, and the third-quarter revenues will clearly surpass levels that we saw in the second quarter just ended.

In conjunction with our market-driven approach, we are focusing on strong financial discipline throughout the business. As promised, we brought in a seasoned financial officer with a solid track record of value creation, and I'd like to formally welcome Mario Paradis. He brings extensive financial experience and his appointment further strengthens the leadership team.

We are already seeing the benefits of his sound financial management and deep operational focus. Our companywide initiative to drive operational efficiencies and enhance business processes called Project Turbo is being overseen by Mario, which is already delivering results. It is expected to generate over CAD5 million annually when fully implemented. And Mario will have some more details on this initiative very shortly.

In line with these improving business fundamentals, we remain confident that we can move towards a cash flow neutral position by fiscal year-end. Clearly, we are going to maintain -- or need to maintain -- strong sales growth, along with solid financial and operating discipline, to deliver on these expectations.

Moving over to intellectual property, we continue to receive positive news with the Australian patent office recently upholding their decision concerning the validity of Neptune's Australian composition of matter patent. By way of background, Enzymotec royalty payments in Australia were dependent upon this review. And with this decision, Enzymotec should commence royalty payments to Neptune based on their Australian krill oil sales.

As to Neptune's US 351 composition patent matter, in September 2015, Aker and Enzymotec filed a notice of appeal, thereby initiating the deal process with the US Court of Appeals in the Federal Circuit. Both Aker and Enzymotec are appealing the March 2015 decision by the Patent Trial and Appeal Board of the US Patent and Trademark Office. In their March decision, the PTAB recognized the patentability of certain claims of Neptune's patent. The appeal process is expected to take up to one year to complete.

Moving on to other highlights, Neptune recently launched a direct-to-consumer offering with the introduction of OCEANO3, a product containing our premium NKO krill oil. It is available for retail clients exclusively online, and can also be purchased by our B2B customers that are looking for turnkey solutions. And this eCommerce solution is in line with our focus to enhance our go-to-market strategies. It allows us to get closer to the consumer, and opens up a window into their buying habits and behaviors.

And we are excited by -- with our current opportunities and outlook. In recent months, our business has gained momentum. And this is being reflected in our results. We're building a much stronger business and team. And as we look to the future, we remain focused on driving long-term profitable growth through continuous improvement of business transformation.

And we are moving beyond the first phase centered on improving core operations, and are becoming increasingly focused on moving to the next level of growth. We are currently finalizing our strategic pathway, and look forward to launching a proactive outreach program with investors in the coming months to elaborate further on these objectives.

With that, I'd like to turn the call over to Mario for a discussion on our financial results. Mario, take it away, please.

Thank you, Jim. And good morning, all. I am pleased to join you this morning for my first quarterly conference call with Neptune and Acasti. Since joining last August, I have often been asked what attracted me to the Company? Firstly, let me say that I was really impressed by the talented management team and Board, including industry veterans like Jim and our Chairman, Pierre Fitzgibbon.

I personally worked with Pierre during our years together growing Atrium Innovations before its eventual sale in 2014. In many ways, I view Neptune as similar to Atrium in its early days. And I look forward to working with Jim and the rest of the team in building a stronger company.

The other attraction to Neptune was its solid base on which to build upon a strong foundation of science, intellectual property, and entrepreneurship. These were very important considerations for me. And despite some obvious challenges, I saw a lot of potential for the Company.

Turning now to the financials. I'd like to remind you that our results are in Canadian dollars, and today's remark may contain forward-looking statements. As well, a past issue at our Sherbrooke plant render, as you can realize, difficult analytical comparisons between year-over-year results. My comments today will focus on quarterly result for our nutraceutical business unless otherwise indicated. Consolidated information can be found in our press release and Neptune's consolidated financial statements, and related MD&A available on SEDAR, Edgar, and the Investor section of Neptune's website.

Turning to the results, nutraceutical revenues for the second quarter were CAD4.4 million, up 62% over -- through the first quarter of the current year, and 67% better than Q2 last year. As Jim said, this is in line with our guidance, and the increase was driven by the resolution of viscosity and production concern at our Sherbrooke facility. Adjusted EBITDA also improved significantly, coming at the negative CAD1.6 million for the current quarter compared to negative CAD3.2 million in the first quarter, and negative CAD10.1 million last year.

The improvement was largely due to stronger revenues, improvement of the gross margin, and a decrease in selling and general and administrative expenses, including lower salaries, professional and legal fees, R&D expenses, and training costs, as well as bad debt expenses was recorded in the prior year for one significant customer for an amount of CAD1.3 million. Our consolidated gross margin as a percentage of revenues also strengthened for the quarter, coming at a 16%. The improvement was driven by stronger revenues and the resolution of production issues.

As Neptune drives productivity efficiencies throughout the business, it should result in a strengthening of our financial results going forward. Comparison with prior quarter is very difficult, past issues at our Sherbrooke plant.

Turning to Project Turbo for a minute, as Jim pointed out in his introduction, we realized -- we expect to realize up to CAD5 million in savings once fully implemented on a run rate basis in our fiscal year ended February 2017. We will see some savings variability in the immediate future, and these cost reduction initiatives gain full traction.

Amongst other things, Neptune is focusing on optimizing business processes and reducing general and administrative expenditures. Approximately 75% of the savings will come from operations and process improvements to be made at our Sherbrooke plant, such as warehousing savings and lower byproduct disposal costs, as an example. On top of this, additional savings will come from various HR-related initiatives and reductions in the general and administrative expenses.

Moving along, Neptune also recorded a significant lower net loss of CAD1.9 million for the quarter. This compares to a net loss of CAD4.6 million in the first quarter and CAD11.4 million in the prior year. The lower net loss is due to the same factor I just outlined for adjusted EBITDA, along with a decrease in stock-based compensation expenses, a foreign exchange gain, and an insurance recovery related to the 2012 plant incident.

Switching to liquidity, the Corporation has consolidated cash and short-term investment of CAD19.2 million as of August 30, 2015. Of this, CAD3.4 million was for Neptune and CAD15.8 million for Acasti. As Jim mentioned, we continue to focus on moving towards a cash flow neutral position by fiscal year-end. Clearly, we'll need to maintain a strong financial and operating focus during this transition period.

In closing, much has been done to strengthen Neptune and position it for future growth. There is clearly more to do. However, with the positive momentum we are seeing at the plant, a healthy sales pipeline and a clear focus on business information, we also see solid opportunities ahead.

I'll now turn the call over to Pierre for Acasti discussion.

Thank you, Mario. And on behalf of Acasti, as well, I welcome Mario onboard. And it's been a pleasure to working with you so far.

So, good morning, everyone. As announced yesterday, we have made significant progress in our ongoing discussion with the US Food and Drug Administration regarding next steps in the clinical development of CaPre. The FDA has provided helpful and constructive guidance and recommendations.

We are incorporating these comments into our development plan to ensure that we are aligned with current FDA views on CaPre and to be better positioned to move towards regulatory approval. In conjunction with several leading experts in pharmaceutical drug development, we are also considering different alternatives to further optimize CaPre's development plan.

Acasti will continue discussions with the FDA and, upon approval, will advance its trials. Going forward, we intend to pursue a 505(b)2 regulatory pathway for CaPre. And we also plan on conducting a pivotal bioavailability bridging study comparing CaPre to an omega-3 prescription drug. This approval pathway has been used by many other companies, and Acasti's regulatory and clinical experts believe such a strategy is best. It should allow us to further optimize the advancement of CaPre including the Phase III protocol design while, most importantly, benefiting from the substantial clinical and nonclinical data package already available with FDA-approved omega-3 prescription drugs.

In addition, the 505(b)2 pathway should reduce expected expenses and should streamline the overall development program required to support a new drug application for CaPre. Discussions are still ongoing, and Acasti has prepared a comprehensive development plan to be reviewed with the FDA. Execution of the plan will be contingent on FDA's comments, of course.

As such we have not finalized our definitive Phase III program, and overall cost and timelines are still contingent on FDA's direction. However, based on preliminary discussions along with our intent to do a pivotal bioavailability bridging study, we believe that a Phase III trial could be initiated in the next 15 months.

Based on our most recent quarter-end cash and cash equivalents balance of CAD15.8 million, we believe that we have sufficient liquidity to complete the pivotal bioavailability bridging study to initiate a Phase III trial and to, of course, maintain ongoing working capital requirements. Acasti remains fully committed to initiating its Phase III clinical trial as quickly as possible in severe hypertriglyceridemia.

As mentioned on several occasions, developing a new drug candidate is a long-term undertaking. That said, with a strong management team assisted by experts in pharmaceutical drug development and an experienced Board, Acasti is well-placed to optimize its development plan for CaPre.

On that, I'll turn the word back to Jim. Thank you.

Thanks, Pierre. This ends our formal remarks today. I'll now turn the call over to the operator for the Q&A portion of the call. Operator?

Doug Loe, Euro Pacific.

Thank you very much, and thanks for the overview, gentlemen. A couple of questions from me -- one on Neptune, one on Acasti.

Starting with Neptune, Jim, Mario, it looked as though gross margin -- it looks like it was about CAD700,000 on an as-reported basis, but it looks as though there was a sizable proportion of inventory write-downs and non-product-based overhead sort of baked into that number that looks as though -- if we strip those out, looks like your gross margin could have been in and around 50%, maybe a bit higher. Just wondering if we should anticipate any other special charges sort of embedded in the gross margin over the next quarter or two, or if most of the one-time issues, the sort of legacy issues related to ramping up the facility, have sort of flowed through the income statement to this point. So just some guidance on gross margin near-term would be helpful.

Second of all, Jim, just on the ongoing IP activities vis-a-vis your peers Aker and Enzymotec, I'm just wondering -- what actually is that issue with the ongoing legal interplay with those two firms, given that your IP has stood up to scrutiny on several occasions now and clearly did in Australia? So just kind of wondering what the issues are there as they've been laid out by your lawyers and theirs.

And I'll just get the Acasti question out of the way here, and then you can address them. Pierre, I'm just wondering if you could maybe flesh out in a little bit more detail what exactly is being accomplished by a pivotal bioavailability bridging study, since the probability that you will generate negative data from a study like that is practically zero. So I'm just wondering what FDA is looking for from you doing that study and, thus, what their thinking is on why you couldn't advance directly into a marine EVOLVE-like study that Vascepa and Epanova -- their sponsors, Omthera and Amarin, were able to conduct in severely hypertriglyceridemic patients; and why you couldn't proceed directly into a study of that type. If you could just kind of flesh out the strategy there from FDA's perspective and yours -- that would be helpful. And I'll leave it there. Thank you.

Well, Doug, that's plenty. (laughter) If I could just maybe air traffic control this, I would suggest, Mario, if you could handle the first question relative to margins, please?

There was a lot of cleanup that was done in the second quarter in terms of in the inventory. So I'm very comfortable with the situation that we have now in our balance sheet in terms of raw material and finished goods. And I don't anticipate any major modification or adjustment in the future in terms of our inventory.

So that being said, with the settlement or the resolution of our Sherbrooke plant issue, so that will give also some comfort on the upcoming gross margin. But as you can understand, with the actual accounting rules -- so my finished goods actually has been recorded with the past manufacturing cost. So the gross margin will improve not necessarily in the third quarter, but more in the fourth quarter and beginning of 2017.

Okay. Thank you, that's great.

Thanks, Mario. Doug, maybe I can take question two here on the intellectual property. Look, as I've said in prior calls and conversations with many of you, that I find it a massive burn of resources that has been spent by this industry -- largely internal orientation, if you will, rather than putting those resources against market growth and development in science, which is what we need.

Having said that, I've had many conversations with others in the industry. I would say they have been very constructive conversations, but we have not come to a place that would be acceptable for everybody. And I will add to that that those conversations continue, and we'll continue to try and get some resolution there, because I just think it's the right thing for the business.

Having said that, though, and I'm looking at Benoit here that manages this for us -- I've never felt better about our position relative to our intellectual property position. It continues to get reinforced.

And I feel better especially because I think we are seeing an end of the road here, Benoit, that -- the end of the road will be this federal appeals case, and that will be probably third quarter next year in terms of conclusion at the latest. So unless we can do something before through mutual agreement, it should be no later than third quarter next year. So I feel very positive about the direction that's going, both preemptively or through a formal conclusion.

So with that, maybe we could hand it over to Dr. Lemieux.

All right. Good morning, Doug, and thank you for the question. It's a very good question. In terms of strategy behind for the 505(b)2, many companies, as I said, have been using this pathway. And basically, to make a long story short, it's a strategy to save time and money.

So as you know, CaPre is a new product in development. And we have run two Phase II clinical trials with a limited number of patients. And for us, to run a -- to take that pathway, the 505(b)2 pathway, I mean, it's a way to ride on safety data that are already known by FDA; but for to do so, we need to compare ourselves to what's being done out there.

And so basically, it's a way for us to really clarify the product and compare the product to other omega-3 products, prescription products that have been used and approved in the past. So it's a way for us to accumulate more data and use some of the known information known by the FDA. So that's basically the strategy behind, and it's a good strategy.

Maybe a quick follow-up here, and I'll let others jump in. Again, I'm still not sure what a bridging study accomplishes. I mean if it's to be conducted in place of a pivotal 250-patient Phase III, that I get. But if future Phase III testing is still being contemplated, I'm just not sure what is accomplished by the bridging trial.

Of course. The bioavailability trial, the bridging study, is to compare ourselves compared to a known drug, and it's to look at the profile of EPA/DHA in the blood. So basically what we expect is to see CaPre being either similar or lower in terms of bioavailability, which will be great. And that's the outcome that we are expecting, of course.

And that's going to -- allowing us to ride on the safety data of Lovaza. But it does not replace the efficacy part of it. So the Phase III trial will still take place. And this is where CaPre will ultimately show once and for all its efficacy and the unique profile, the TRIFECTA profile that we've been talking about. All right?

Okay, that's fair enough, thanks.

Robin Cornwell, Catalyst Research.

My first question is much like Doug's. This bridging strategy for CaPre -- is it possible this is being done to attract a strategic partner, as you mentioned in your review?

Well, it's going to be -- it depends on the data we're going to be collecting. But it's more for our development than to attract a partner, to be honest with you. The partner will come into play when they are going to see the efficacy data of our Phase III trial. That's going to be -- that data will be attracting a partner. For a bridging study, unlikely.

Okay. So the -- can you run us through the timeline, then, perhaps in a little bit more detail as to the bridging study --?

It's too early. I'm sorry, but it's too early to advise you on the timeline, since we are still in discussion with the FDA regarding those trials.

I think, if I may add for Pierre here, that part of the negotiation with the FDA is to expedite the time frame as much as possible. And this pathway is what we are working towards to find the speediest resolution to market in Phase III. It's not concluded yet, but this is the clearly objective as fast as possible, Robin.

Okay. Thank you for that. My second question is on Project Turbo. $5 million is a very aggressive target from, you know, just historical -- looking at your numbers. Have you got any guidance as to what your margins would look like? After Project Turbo is basically completing, where historically margins were -- gross margins were around 45%, as Doug said, they are probably a little closer to 50% if you take out all the noise this quarter. What is your objective for gross margin going forward?

Thank you for the question. It's very difficult for me to comment on what is our objective. When we look at some competitors, you are right. The range that you are referring to is probably in that ballpark.

But here we -- there was so much changes in our manufacturing process, the data that we have are referring to back in 2012 and before. But we are very confident that with the actual price, market price -- because the industry price have also an impact on the gross margin -- and with all the initiatives that were actually put in place, we should be the same range of our competitors. There is no reason why we should not be in that range, but it's too early to comment on that.

Okay. Thank you. And I guess, Jim, looking at your healthy sales funnel, you were disgusting (sic - discussing). Can you give us a little bit more picture as to what your, I guess, pipeline is going forward, even over the next six months? I understand your position that the sales will improve next quarter. Can you give us a little bit more guidance going forward as to what your sales team is currently occupied with?

Yes, Robin, thank you. One of our limiting factors here up until very recently has been manufacturing and availability of finished form goods for sale. I would say the manufacturing is no longer the limiting step for the organization. And what we have to do is get back in the door and earn our position with customers.

Now, the world has changed a little bit, Robin, which I think is important to say -- that this is not an undersupplied market. There is adequate supply in the market. So as a company, what we have to do is through science, innovation, relationships earn our way back in.

Now, having said that, I'm absolutely encouraged, because some of the major marketers in the world are now embracing us and becoming some of our larger customers, because we are doing it the right way -- with innovation, quality, on-time delivery, etc. So we are earning our way back in, but we've got to take it day by day, customer by customer, Robin. So we will be above second quarter in the third quarter, and we will look at performance in the fourth quarter at the next call.

And just a couple more questions. One was -- Mario, you were targeting year-end for breakeven EBITDA. What happens beyond there? When do we get positive EBITDA back? You had CAD3.4 million of cash, and you say that this will be ample for the next 12 months. Can you just discuss that for a minute?

Yes, certainly. So, Robin, you're absolutely right; we are selling close to the rack now with only CAD3.4 million. But with the expectation that we have from the sales side, with the efficiency that we have already put in place, we should be -- my expectation is to be cash flow neutral for the last two quarters, so we have the same level of cash by year-end.

But again, the sales need to be at the rendezvous. And just to complete on the -- on that aspect, so it's absolutely not in our plan to work on a financing scenario that would dilute our actual shareholder. So there's a lot of other options, because at some point of time we could need some help to support our growth in terms of working capital. So, yes, that's it.

Okay. My final question -- sorry for dominating here, but this question is -- keeps coming up. You have your success in Australia with Enzymotec. You say they should recommence payment or should commence payment, but will they? That's back to Doug's question again. Will they? What is the issue? How do you get your royalties?

Robin, it's a great question. Benoit, our General Counsel, is here. Can you offer a quick response to that one?

Well, yes. We're working on it. And we are actively working on it. But it's part of the legal process; and I know it's taking some time, but I can tell you that we are really working on it. So we should see something pretty soon.

So do you have to -- obviously, you have to deal with the Australian legal framework. Is that correct? So you are stretched into fighting in Australia?

Well, there's no longer a fight in Australia. It's over. It's clear that the examination process is over, and that Neptune's patent has been declared valid and enforceable.

Again, we are fighting on many fronts. Like I said, we are working very hard in getting the money from Enzymotec, but I don't know what I can say --.

Robin, I guess the answer to that is, I think, when you look at those companies, they've pursued things to the very end, but there is eventually an end to these things, and there is resolution. And eventually it goes beyond the courts, I guess, to something more serious. But they have a legal responsibility, and we'll make sure that they fulfill that legal responsibility. Full stop.

Okay, thanks very much.

(Operator Instructions) Rick Schottenfeld, Coyote Capital.

First of all, I just want to commend you. You guys have done a remarkable job in quickly turning this around. It's a big difference this quarter versus last, and you know, when you guys -- when you first showed up, Jim, I guess they just threw you into the deep end of the pool. And it looks like you are starting to swim now. So I really appreciate that and commend you guys on it.

A couple of housekeeping questions. You had this insurance adjustment of CAD700,000-something for the quarter. Can you -- CAD724,000. Can you tell me what that recovery is related to? Is that from the write-down of inventory? Or is that just stuff that's been flowing through? And what are our expectations on that front? I know you were investigating it last quarter.

Mario, maybe you can answer that one, please.

Yes. There was some discussion on the settlement regarding the equipment -- some equipment. So it's not related to inventory. So we finalized with our insurance company recently, and we cashed the remaining amount.

And is there still an ongoing claim against the inventory you were forced to write down last quarter?

There is a second claim that is in process, Mario, right now. You could comment.

Yes, there was a -- what we call -- you are probably familiar with that -- some business interruption section in the insurance policy. We are still negotiating with -- are in discussion with our insurance company to get a resolution on that part. But you should not anticipate a significant amount from that. But it could -- there could be a good guy in the upcoming quarters.

Let me add to that, Rick, if I may -- with Mario's arrival, he has reviewed all those files, along with Benoit, our General Counsel. We do see one opportunity that we are pursuing right now. And if we were to get a positive conclusion, Mario, that would be probably in the next quarter, I would imagine, right? Yes.

Yes, yes.

Okay. Another question. On the $5 million in savings, has any of that been realized already? And over what period of time do you expect that to manifest itself in your numbers?

Mario, do you want to comment, or shall I?

Yes, so I can start. So effectively there were some initiatives that took place before my arrival, as you know I just joined six weeks ago. So mainly it was related to HR optimization at our Sherbrooke plant and some G&A effort. But a lot of these savings will come from process changes. And this will take place in the upcoming months and quarters.

Yes, Rick, I would say that a lot of these projects have been initiated. We'll start to see the impact of them really going forward.

And one example that I think we referred to in the past is plant efficiencies such as recycling of our acetone, which was, I believe, a CAD50,000 per month expenditure. That will now be recycled. We won't have that incurring expense -- and many examples like that where we can drive efficiencies in the site or efficiencies in the G&A area that would result in bottom-line contributions.

Great. One more thing. So, Jim, stepping back, bigger picture, I don't really think that you left where you were to come here to just sell 150 tonnes of krill oil. I would assume you have bigger plans for the platform and the Company in terms of where you think you can take it. Can you sort of give us some sense of what your vision is here for the longer-term in terms of Neptune, and where you see it positioned years down the road rather than quarters down the road?

Yes, thanks, Rick. Look, how do I answer that? I think, like we communicated at the annual general meeting, I mean, the first phase of arrival here was -- I call it hoisting the anchor. The boat was anchored to the ground, with some challenges of cost and challenges of production effectiveness.

I think we've hoisted that anchor, and we are able to move the boat right now. We are -- have a view for growth in the future. That will include a couple of areas. One is this production platform we have -- I think it's fantastic. I mean, I really think it's a beautiful site.

What we need to do, though, is, I believe, further expand it and eventually go into a multipurpose situation. We believe we can expand it significantly with minor investment -- single-digit millions. That will give us the opportunity not to be a single-product company, but a multiproduct company.

If we can get into adjacent spaces using our production technology combined with our intellectual property platform, that's very, very interesting for us. And we've started scoping that out. We are very interested in moving up the value chain.

As a minor step, you see our direct-to-consumer toe in the water. It's a view to get -- a view to customers. But also services: if you look at what we are doing now, about 15% of our turnover is actually turnkey solutions with customers. I think increasingly, as the industry fragments into many, many channels, turnkey solutions are of interest. And we have got a position of our business there. We would like to do more there.

We are in the process of articulating these more formally. And we are putting plans together with John to start to review these and socialize these in November, likely in New York, Toronto, Montreal; and with harder numbers, with Mario's help, is turn to the long-term business plan in the calendar first quarter of next year.

All right. Great. And great job, guys, thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Ripplinger for closing remarks.

Well, thank you, everybody, for joining us today. And we look forward to meeting with you and speaking with you over the next quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.