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Edited Transcript of CO.N earnings conference call or presentation 25-Aug-20 12:00pm GMT

Q1 2021 Global Cord Blood Corp Earnings Call

Central Aug 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Cord Blood Corp earnings conference call or presentation Tuesday, August 25, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bing Chuen Chen

Global Cord Blood Corporation - CFO & Director

* Cathy Bai

Global Cord Blood Corporation - VP of Corporate Finance

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Presentation

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Operator [1]

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Welcome, everyone, to Global Cord Blood Corporation's Earnings Conference Call for the fiscal 2021 First Quarter. (Operator Instructions).

Now I would like to introduce Ms. Cathy Bai, VP of Corporate Finance, to begin the presentation. Ms. Cathy, please.

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Cathy Bai, Global Cord Blood Corporation - VP of Corporate Finance [2]

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Thank you, Sheen. Good morning, everyone. Welcome to our fiscal 2021 first quarter earnings conference call. A press release discussing our financial results has already been published and a copy is available on our company's website. During the call, our management team will summarize corporate developments and financial highlights for the quarter. A question-and-answer session will follow.

Before we begin, please note that today's discussion will contain forward-looking statements that are subject to certain risks and uncertainties, and actual results could be materially different from these forward-looking statements. Kindly refer to our SEC filings for detailed discussion of potential risks.

In the interest of time, we will begin with our CEO's remarks, followed by a detailed report of our fiscal 2021 first quarter financials given by our CFO, Mr. Albert Chen. Our management will be available to answer questions during the Q&A session. (Operator Instructions).

Today, on behalf of CEO, Tina, I will read her prepared remarks. Let's begin the presentation.

Good morning, ladies and gentlemen. Welcome to our fiscal 2021 first quarter earnings conference call. During the first quarter of fiscal 2021, we continue to face challenges brought on by the COVID-19 pandemic and downward pressure on the economy. As the management team adjusts our sales and marketing tactics, the group managed to obtain 17,233 new subscribers this quarter, down by 17.2% year-over-year, and 6.8% quarter-over-quarter. By the end of June 2020, our accumulated subscriber base reached 849,933.

During the quarter, the ongoing pandemic continued to affect our operations and business environment. At hospitals, which are one of our most important channels, our front-line sales workers who were able to return to work, continue to face resistance when trying to access potential clients. Meanwhile, consumer sentiment remains sluggish as measures taken to drive economic recovery were undermined by the recurrence of confirmed COVID-19 cases. In addition, some households altered their consumption behaviors as income was diminished. These situations may potentially hinder our client accessing rate and conversion rate in the near future.

Despite this, compared to the previous quarter, when the COVID-19 pandemic first became part of people's daily life, measures to fight against this virus has evolved. As consumers adapted to the new normal and seemed more willing to participate on online marketing activities, like our prenatal classes, we have gradually developed a response mechanism that enables us to cope with the long-term consequences.

Taking all this into consideration, and given that, the epidemic is largely under control in Beijing, Guangdong province and Zhejiang province, the management team has decided to adjust the fiscal 2021 new subscriber target from the range of 60,000 to 65,000 upwards to the range of 62,000 to 67,000.

Looking into the future, the current one license per region and no more than 7 licenses policy in the Cord Blood banking industry in China will expire by the end of 2020. However, there is no additional guidance on the new policy that permits provincial health care commissions to issue cord blood banking licenses in the free trade zones at this time.

The management team will continue to closely communicate with various departments within the National Health Commission, conduct scenario analysis to the fullest extent possible and reserve resources to enable flexibility in our long-term strategic planning. Meanwhile, the management team will continue to look into business development opportunities in the health care industry that possess substantial synergies with our existing services or have the potential to expand our geographical coverage or revenue sources, thereby, safeguarding the group's long-term sustainable growth.

This concludes my remarks of our fiscal 2021 first quarter results. Thank you for your ongoing support. I'll now turn the call over to our CFO, Mr. Albert Chen, to review our first quarter financial performance in greater detail.

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Bing Chuen Chen, Global Cord Blood Corporation - CFO & Director [3]

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Good morning, everyone. In the first quarter, revenues increased by 3% year-over-year to CNY 281 million. Top line growth was mainly driven by the increase in storage revenues as our subscriber base grew larger, which offset the decline in new subscribers due to the COVID-19 pandemic. By the end of June 2020, our accumulated subscriber base increased to more than 849,000, and our first quarter storage revenues increased by 13% year-over-year to CNY 119 million. Storage revenues accounted for 43% of total revenues, up from 39% in the prior year period.

As mentioned in our CEO remarks, during the first quarter, the COVID-19 pandemic continued to affect our business environment and operations. Facing such challenges, we managed to recruit 17,233 new subscribers in the first quarter, representing a decrease of 17% year-over-year and 7% quarter-over-quarter. Revenues generated from processing fees and other services decreased by a lesser degree by less than 4% year-over-year to CNY 162 million as the full period contribution of the revised processing fees pricing partially offset the decrease of new subscribers. Gross profit in the first quarter increased by 4% year-over-year to CNY 238 million. Gross margin remained consistent at 85%, similar to the past few quarters.

As we continue to maintain tight control over operating costs in such challenging times, operating income increased by 19% year-over-year to CNY 134 million. Operating margin expanded to nearly 48% from 41% in the prior year period. Depreciation and amortization expenses were CNY 12 million, similar to the first quarter of last year. Non-GAAP operating income increased by 17% year-over-year to CNY 146 million.

In the reporting quarter, we continue to cut back on sales and marketing expenses and only maintain essential promotional activities. As a result, sales and marketing expenses decreased by 9% year-over-year and 9% quarter-over-quarter to CNY 55 million. Sales and marketing expenses as a percentage of revenues were down to less than 20% from 22% of last year period. Altogether, these cutbacks have brought us to a level that was comparable to fiscal 2014.

We also reduced staff costs fees, overhead and professionals and provisions. Therefore, general and administrative expenses decreased by 11% year-over-year to less than CNY 45 million. General and administrative expenses as a percentage of revenue decreased to 16% from 18% in the prior year period. In the reporting quarter, we recorded an increase in fair value of equity securities or mark-to-market gains of CNY 18 million, up from CNY 10 million in the prior year period.

As a result of the increase in operating income and the increase in fair value of equity securities, income before income tax for the first quarter increased by 24% year-over-year to CNY 160 million. Income tax expense for the quarter was CNY 26 million. Net income attributable to the company shareholders increased by 22% year-over-year to CNY 133 million. Net margin improved to 47%. Basic and diluted earnings per ordinary share increased by 23% year-over-year to CNY 1.09.

These are just the highlights of our first quarter results. We are now happy to take on any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) I would like to call upon Mr. [Jeff Oliver] from [Staffan] to ask your question.

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Unidentified Analyst, [2]

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Could you comment on your new subscriber breakdown and payment option breakdown for the quarter?

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Bing Chuen Chen, Global Cord Blood Corporation - CFO & Director [3]

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Thank you for the questions. For the first quarter of fiscal 2021, in terms of new subscriber breakdown, approximately 67% of new subscribers were from our Guangdong province, 20% from our Zhejiang market and the remaining 17% were from our Beijing market.

In terms of our payment option breakdown, approximately 42% of our new subscribers elected the bullet payment option or more commonly known as the Option 2 payment scheme. Approximately 29% choose installment, and the remaining 29% choose the normal payment options. So one thing worth highlighting is that, as you are aware, that this is still a challenging time. We have expanded our installment programs in order to maintain our market presence as well as to meet our target as well. But nonetheless, still a significant amount of our new subscribers elected through the payment option, which has generated a sizable amount of our cash inflows. But investors need to be aware that the installment payment option is now 29% as compared to a year ago, which is approximately 10%.

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Operator [4]

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(Operator Instructions) At this point, there appears to be no further questions. I would now like to turn the call back to Ms. Cathy Bai. Ms. Cathy, the floor is yours.

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Cathy Bai, Global Cord Blood Corporation - VP of Corporate Finance [5]

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Thank you, Sheen. This concludes our earnings conference call for the fiscal 2021 first quarter. Thank you all very much for your participation and ongoing support. Have a great day. Operator, you may now disconnect.

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Operator [6]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.