Neptune Wellness Solutions Inc.
Q2 2016 Earnings Call Transcript

Published: 15 Oct 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Neptune Technologies & Bioresources’ 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.

[John Ripplinger:]

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 lines for questions at which time all 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 represent 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 maybe required by Canadian and U.S. 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 Commissions and with the Securities Exchange Commission. With that, I'll turn the call over to Jim.

[Jim Hamilton:]

Thank you very much, John, and good morning, everybody. It’s been a busy and exciting period for Neptune and I like to start by discussing some of the positive milestones we achieved today. Let me begin on what's clearly been one of our overriding objectives, manufacturing. And I am 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 facility is now – has now an effective capacity 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 as to making this happen. [Sherbrooke] [ph] other way are now entering of the next project phase towards the further site efficiencies and capacity. I am very encouraged by the potential here is the 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. Proportionally 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 everyone of our jobs here. I've personally been with many of our customers of late and I am very encouraged to see the progress and the projects that we now have underway. This is turning into higher sales, with second quarter revenues coming in at $4.4 million, that’s a 62% increase over the first quarter of this year, and 67% over the second quarter of last year and fully inline with our previous guidance, as well our sales funnel was 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 disciplines throughout the business. As promised, we've brought in 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 this sound financial management and deep operational focus. Our companywide initiative to drive operational efficiencies and enhance business processes called project Turbo, is been overseen by Mario, which is already delivering results, is expected generate over $5 million annually when fully implemented and Mario has 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're 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 see 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 in Enzymotec’ royalty payments from Australia. Were dependent upon this review and with this decision and 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 appeal 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 the direct to consumer offering with the introduction of OCEANO3 product containing our premier, 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 solution. And this e-commerce solution is inline with our focus to enhance our go to market strategies. It allows us to get closer to consumer and opens up a window into their buying habits of teenagers. And we are excited by – with our current opportunities and outlook. In recent months our business has gained momentum and this is being reflective in our results. We are building a much stronger business of team and as we look to the future we remained focused on driving long-term profitable growth through continuous improvement of business transformation. We are moving beyond the first phase, centered on improving cooperation’s 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 pro-active [indiscernible] 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? Go ahead, please.

[Mario Paradis:]

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. Things turning last obvious, I have often been asked why they tried 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 all years [indiscernible] innovations before its eventual phase in 2014. In many ways I view Neptune as similar to [Atrions] [ph] 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 based on which to build upon a strong foundation of science, intellectual property and sense of ownership. These were very important consideration for me and despite some obvious challenges I felt 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 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 results for our nutraceutical business unless otherwise indicated. Consolidated information can be found in our press release in Neptune’s consolidated financial statements and the related MD&A available on SEDAR, EDGAR, and the Investor sections of Neptune’s website. Turning to the results, nutraceutical revenues for the second quarter were $4.4 million, up 62% over to the first quarter of the current year and 67% better than Q2 last year. As Jim said, this inline with our guidance and the increase was driven by the resolution of this positive production concerned at our Sherbrooke facility. As EBITDA also improved significantly coming at a negative $1.6 million for the current quarter, compared to negative $3.2 in the first quarter and negative $7.1 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 cost. As well a bad debt expenses was recorded in the prior year for one significant customer for an amount of $1.3 million. Our consolidated gross margin as a percentage of revenues also strengthened for the quarter coming at a 16%. The improvement was driven by a stronger revenues and reservation of production issues. As Neptune's drives productivity efficiencies throughout the business it should result in strengthening of our financial results going forward. Comparisons with prior quarters 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 $5 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 near future and [indiscernible] gainful attraction. Amounts are retained Neptune is focusing on optimizing business processes and reducing general and administrative expenditure, approximately 75% of the savings will come from operation and process improvement to be made at our Sherbrooke plant such as realizing savings and lower buy product disposal cost as an example. On top of this, additional saving would come from various HR related initiative and reduction in general and administrative expenses. Moving along Neptune also recorded a significant lower net loss of $1.9 million for the quarter, this compares to a net loss of $4.6 million in the first quarter and $11.4 in the prior year. The lower net loss is due to the same factor just outlined for adjusted EBITDA, along with a decrease in stock-based compensation expenses, foreign exchange gain and an interest recovery related to 2012 plant incident. Switching to liquidity, the corporation has consolidated cash and short term investment of $19.2 as of August 30, 2015, on this $3.4 was for Neptune and 15.8 for Acasti. As we 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 clear focus on business information. We also see solid opportunities ahead. I now turn the call over to Pierre for Acasti's discussion.

[Pierre Lemieux:]

Thank you, Mario and on the behalf of Acasti's I welcome Mario on board. It is been pleasure to working with you so far. So good morning, everyone. As announced yesterday, we 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 outperforming constructive guidance and recommendations. We are incorporating these comments into our development plans to ensure that we are aligned with current FDA views on CaPre and to be better positioned to move forward ready to approval In conjunction with several leading experts in pharmaceutical development, we are also considering different alternatives to further optimize CaPre's development plans. Acasti will continue discussions with the FDA and upon approval will then [indiscernible] Going forward, we intend to pursue a 505(b)(2) regulatory pathway for CaPre and we also plan on conducting a pivotal [indiscernible] study comparing CaPre to [indiscernible] prescription drug. This approval pathway is 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 advancement of CaPre including Phase 3 protocol design or most importantly benefiting from the substantial [indiscernible] data package already available beside approved legacy prescription drug. In addition, the 505(b)(2) pathway should review is expected to expenses and should streamline the overall development program required to support a new drug application for CaPre. Discussions are still ongoing and Acasti development plan to be reviewed with the FDA. The execution of the plan will be contingent on FDA of course. As such, we have not finalized our definitive Phase 3 program in overall cost and timeline partially contingent on FDA direction. However, based on preliminary discussions, along with our initiative pivotal bioavailability bridging study, we believe that Phase 3 trial could be initiated in the next 15 months. Based on our most recent quarter and cash and cash equivalence balance of $15.8 million, we believe that we have sufficient liquidity to complete the pivotal bioavailability bridging study to initiate a Phase 3 trial and to first maintain our growing working capital requirements. Acasti remains fully committed to initiating its Phase 3 clinical trial as quickly as possible in severe [indiscernible]. As mentioned on several locations, developing a new drug category is a long term undertaking. That said, with the strong management team as this is experts in pharmaceutical drug development and in experience for it, Acasti is well placed to optimize its development plan for CaPre. With that, I’ll turn the - back over to John. Thank you.

[John Ripplinger:]

Thanks Pierre. Well 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?

[Operator:]

And our first question comes from Doug Loe of Euro Pacific. Your line is now open.

[Doug Loe:]

Yes. Thank you very much and thanks for the overview gentlemen. Couple of questions from me, one on Neptune, one on Acasti. Starting with Neptune, Jim, Mario looked like gross margin – looks like it was above 700,000 on as reported basis but it looks as though there was a sizeable proportion of inventory write-down and on product based overhead sort of backed in that number that looks as so. If we strip those out, looks like your gross margin could have been in around 50% maybe a bit higher. Just wondering if we should anticipate any other special charges for the competitive gross margin early next quarter, two of most of the onetime issues that sort of legacy issues related to ramping up the facility, you have sort of flow 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 IT activities vis-à-vis, [Pierre Lemieux] [ph] I’m just wondering, what actually is that issue with the ongoing legal interplay with those two firms given that your IP has stood to on certainly on several occasions now and clearly did in Australia. So just kind of wondering what the issues are there as they have been laid out by your lawyers and theirs. And I just got the Acasti question out of the way here and then you could address them. Pierre, one of you just maybe flush out a little bit more detail what exactly is being accomplished by a pivotal bioavailability bridging study since the probability that will generate negative data from a study like that is practically zero. So I am just wondering what FDA is looking for from you during that study and thus what their thinking is on why you couldn’t advance directly into - of odd like study that [indiscernible] were able to conduct in severally [indiscernible] patients and why you couldn’t proceed directly into a study of that type. Just kind of flush out the strategy there from FDA’s perspective and yours that would be helpful. And I’ll leave it there. Thank you.

[Jim Hamilton:]

That’s plenty. If I could just maybe try to control this I will just - Mario if you could handle the first question relative to margins please.

[Mario Paradis:]

Good morning, Doug. It was none of a clean-up that was done in the second quarter in term of inventory. So I’m very comfortable with the situation that we have now in our balance sheet in term of raw material and the finish good. 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 RDD] [ph], the resolution of our of several plan issue, so that will give us all some comfort on the upcoming gross margin. But as you can understand with the actual accounting rules so my thinking is good actually as been recorded with the fast manufacturing cost. So the gross margin will grew not necessarily in the in the third quarter but more in the fourth quarter at the beginning of 2017.

[Doug Loe:]

Okay. Thank you. That's great.

[Pierre Lemieux:]

Thanks Mario. Doug maybe I could take a question too here on the intellectual property at the -- look, as I said in prior calls and conversations with many of you that I find a massive burn of resources that has been spent by this industry, largely internal orientation if you will rather than putting the resources against the 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 that the 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 will continue to try and get some resolution there because I just think it's the right thing for business. Having said that though, and I'm looking at that long here at the managers as 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're seeing an end of the road here been long that the end of the road will be this federal appeals case and that that will be probably third quarter next year in terms of conclusion later. 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 of where progression has going both preemptively or through a formal conclusion. So, with that maybe we can hand it over to Dr. Roderick.

[Roderick Carter:]

Good morning, Doug. Thank you for the question, it's a very good question. In terms of strategy behind for the 505(b) many companies as I said have been using this pathway, and basically to make a long story short, it says strategy to save time and money. So as you know CaPre is a new product in development and we have two Phase 2 clinical trials with a limited number of patients. And for us to run -to take that pathway the 505(b) pathway, it's a way to ride on – safety data that are already known by FDA, and for it do so we need to compare ourselves to what's been done out there. And so basically it's a way for us to re-clarify that the product and compare the product to other omega-2 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 its signature strategy.

[Doug Loe:]

Maybe a quick follow up here, I want others to jump in. Again I'm still not sure whether what a bridging study accomplishes, if it's to be conducted in place of a pivotal 250 patient Phase 3 data yet, but if the future phase retesting is still being contemplated, I'm just not sure what's accomplished by -

[Roderick Carter:]

Of course, FDA bioavailability trial bridging study is to compare ourselves compared to the non-drug and it's to look at the profile - . So basically what we expect is to see CaPre being either similar or lower in terms of bioavailability which will be great and it's - that's the outcome that we're expecting of course and that's going to allow us to write on the safety data but it does not replace the efficacy part of it. So the Phase 3 trial will still take place and this is where CaPre will ultimately show once and for all it's efficacy and unique profile, the profile that we've been talking about. All right?

[Doug Loe:]

Okay. Okay, fair enough. Thanks.

[Roderick Carter:]

You're welcome.

[Operator:]

Thank you. And our next question comes from Robin Cornwell of Catalyst Research. Your line is now open.

[Robin Cornwell:]

Hi, good morning. My first question is actually Doug said, this bridging strategy for CaPre, is it possible this is being done to attract strategic partner as you mentioned in your review?

[Jim Hamilton:]

Well, I mean 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 in to play when they're going to see the efficacy data of our Phase 3 trial, that's going to be the data - that data will be attracting partner. For a bridging study.

[Robin Cornwell:]

Okay. Can you run us through the timeline and perhaps little bit more detail as to what we should expect.

[Jim Hamilton:]

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

[Pierre Lemieux:]

I think if I may add for – Pierre here, that part of the negotiation of the FDA is to expedite the timeframe as much as possible. And this pathway is what we're working towards to find this serious resolution to market Phase 3. It's not concluded yet but this is clearly objective as fast as possible Robin.

[Robin Cornwell:]

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

[Pierre Lemieux:]

Thank you for the question. It's really difficult for me to comment on what is our objective. When we look at some competitors, you're right, it's 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're very confident that with the actual price, market price because the price - industry price have also an impact on the gross margin, and with all the initiative that we're actually put in place we should be in the same range of our competitors, there's no reason why we should not be in that range but it's surely to comment on that.

[Robin Cornwell:]

Okay, thank you. I guess Jim, looking at your healthy sales funnel you were discussing. Can you give us little bit more picture as to what your - I guess pipeline is going forward even over the next six months. I understand your position at 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 preoccupied with?

[Jim Hamilton:]

Yes, Robin, thank you. One of our limiting factors here up until very recently has been manufacturing and availability of finished form goods for sales. I would say that manufacturing is no longer the limiting 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, run away 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 our larger customers because we're doing it the right way with innovation, quality, on-time delivery et cetera. So, we're earning our way back in but we got to take it day-by-day, customer-by-customer, Robin. So we will be above second quarter and the third quarter, and we'll look at performance in the fourth quarter at the next call.

[Robin Cornwell:]

And just couple more questions. One is Mario you're targeting year end for breakeven EBITDA, what happens beyond there? When do we get positive EBITDA and back? You had $3.4 million of cash and you say that this will be ample for the next 12 months. Can you just discuss that for a minute?

[Mario Paradis:]

Yes, certainly. So, Robin, you are absolutely right, we are selling close to the – with only $2.4 million, but with the expectation that, well, from the sales side, with the efficiency that we already put in place. We should be – my expectation is to be cash flow neutral for the last two quarters. So yes, the same level of cash by year end. But again that saves me to be at the [indiscernible] and just to complete on that aspect, so absolutely not in our plan to work on a financing scenario that would dilute our actual shareholder. So there is a lot of other option because at one time we couldn't need some help to support our growth in term of working capital. So that's it.

[Robin Cornwell:]

Okay. And my final question, sorry if I’m dominating here but, this question keeps coming up and have your success in Australia [indiscernible] you say, there should recompense payment or it should commence payment but will they, back to Doug's question again will they – what is the issue, how do you get the royalties?

[Jim Hamilton:]

Robin, it's a great question. Benoit Huart, our General Counsel is here and can you offer quick response to that.

[Benoit Huart:]

Yes. We are working on it and we are actively working on it. But it's probably new process and I know it's taking some time but I can tell you there we are really working on it so we should see something pretty soon.

[Robin Cornwell:]

So, do you have to – obviously you have to deal with the Australia legal framework is that correct, sort of you stretched into fighting in Australia.

[Benoit Huart:]

Well there is no longer fight in Australia. It's over a period of reexamination process is over and that's – has been declared valid and possible but again we are fighting on many fronts. Like I said we are working very hard in getting the money from environment but –

[Jim Hamilton:]

Robin I guess the answer to that is, I think when you look at those companies that persuade things to the variant but there is eventually an end to these things and there is resolution. And eventually - so I guess to something more serious. But they have a legal responsibly, we'll make sure they fulfill that legal response for stock.

[Robin Cornwell:]

Okay. Thanks very much.

[Operator:]

[Operator Instructions] And our next question comes from Rick Schottenfeld of Coyote Capital. Your line is now open.

[Rick Schottenfeld:]

Hi guys. First of all I just want to commend here. You guys have done a remarkable job and quickly turning to surround it’s a big difference this quarter versus last. And when you first showed up Jim, I guess three year into the deep end to the pool, and looks like you started to swim now. So I really appreciate that and commend you guys on it. Couple of housekeeping questions. You had this insurance adjustment of 700 something thousand dollars for the quarter – 724. Can you tell me what is related to is that from the write-down of inventory or is that just surface and flowing through and what are our expectations on that front I know you are investing at last quarter.

[Jim Hamilton:]

Mario, maybe you can answer that.

[Mario Paradis:]

Yes. There was some discussion on the settlement regarding the equipment – semi equipment so it's not related to inventory so we finalized with our insurance company recently and we cash the remaining amount.

[Rick Schottenfeld:]

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

[Jim Hamilton:]

There is a second claim that is in process Mario right now you could –

[Mario Paradis:]

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

[Jim Hamilton:]

Let me add to that breakup I may, is with Mario's arrival he is reviewed all those files along with then large general council. We do see one opportunity that we're pursuing right now and if we were to get a positive conclusion Mario that would be probably in the next quarter I sort imagine, right.

[Mario Paradis:]

Yes.

[Jim Hamilton:]

Yes.

[Rick Schottenfeld:]

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 so from your numbers?

[Jim Hamilton:]

Mario, do you want to comment or should I?

[Mario Paradis:]

Yes. So I can start, thanks we believe there were some initiative that took place before my arrival as the – I just joined six weeks ago. So mainly related to HR optimization that there were Sherbrooke plant and some geni [ph] effort. But a lot of these savings would come from plus as changes and this would take place in the upcoming months and quarters.

[Jim Hamilton:]

Rick, I would say that we – 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 past is plant efficiencies, such as recycling of our Aston [ph] which I believe a $50,000 a month expenditure, that will not 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 lot of my contributions.

[Rick Schottenfeld:]

Great. One more thing, so Jim stepping back to bigger picture you know, I don’t really think that you left where you were to come here to just sell 150 tons 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 sort of sense of what your vision 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?

[Jim Hamilton:]

Yes. Thanks, Rick. Look, how do I answer that, I think like we communicated at the annual general meeting, in the first stage of arrival here, would call it first [ph] in the anchor, I mean, if the goal was anchored to the ground with the challenges of cost, challenges of production effectiveness, I think we are close to that anchor and we're 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 is 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 it go into a multipurpose situation. We believe we can expand it significantly with minor [ph] investment, single digit, millions that will give us the opportunity not to be a single product company, but a multi product company. If we can get into adjacent spaces using our production technology combined with the regulation [ph] property platform that’s very, very interesting for us and we've started scoping that out. We're very interested in moving up the value chain as a minor step you see our direct to consumer toe [ph] in the water, it’s a view to get, a view to customers, but also services, if you look at what we're doing now about 15% of turnover is actually turnkey solutions with customers. I think increasingly this as the industry fragments into many, many channels, turnkey solutions are of interest and we've got our position of our business there, we 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 renew these and socialize these in November likely in New York, Toronto, Montreal and with harder numbers with Mario's help is driven to the long-term business plan in calendar first quarter of next year.

[Rick Schottenfeld:]

All right. great. And great job, guys. Thank you.

[Jim Hamilton:]

Thanks.

[Operator:]

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

[John Ripplinger:]

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. Thanks.

[Operator:]

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