Q2 2022 Global Cord Blood Corp Earnings Call
Good morning, everyone and welcome to our second quarter fiscal 2022 earnings Conference call.
During the reporting quarter the group managed to recruit 19066, new subscribers.
Up 8% year over year.
As a result of the relatively low base in the previous year period.
And down 3% quarter over quarter in line with management's expectations.
At the end of September 2021.
Our accumulated subscriber base surpassed 938000.
During the second quarter, although business environment continue to improve.
Long standing challenging remained.
As a result of the effective COVID-19 pandemic control measures implemented in our operating markets.
Potential clients, we're less concerned about hospital admissions for childbirth.
The pandemic impact on our business will gradually alleviated.
However.
As economic activities resumed.
Occasional local outbreaks.
Forced certain hospitals to maintain strict access policies.
Thereby still hindering our sales activities and hospital channels.
In addition, the overall number of women of Childbearing age and newborns continue to decline.
Given its intractable nature, we do not expect this demographic trend to reverse in the near future.
Compared to the previous quarter, there have not been many observable industry related policies or changes that affected the groups business in the second quarter.
Regarding the three child policy.
Various regulatory bodies in China rolled out serious to I'll follow up rules and measures aimed at reducing the cost of child bearing and raising children.
Such as expansion of child care services.
Rectification of off campus education and training.
And curbing of house prices in select school districts among others.
Despite these efforts current contributions of our families Fairchild.
Have yet to make a substantially notable difference to the group's new subscribers.
As discussed last quarter concerns over cord blood banking licensing regulations, and bio security laws have yet to subside.
The management team continues to closely monitor any new developments related to these policies and potential industry wide implications that may be announced.
With this in mind.
<unk> team maintains the guideline for the fiscal 2022, new subscriber target.
Which is expected to fall within the range of 72200 75000.
Facing regulatory and market uncertainties and the management team will continue to focus on the company's long term development.
Maintain active communications with the relevant regulatory agencies.
Expand marketing and sales channels and.
And Carryout extensive work as we dive deep into new business development opportunities.
This concludes my remarks regarding our fiscal 2022 second quarter results.
Thank you for your ongoing support of global cord Blood Corporation.
Now I will turn the call over to our CFO, Mr. Albert Chen to discuss our second fiscal quarter financial performance.
Mr. Chan. Please go ahead.
Good morning, everyone. Thank you for joining our call today.
In the second quarter revenues increased by 10% year over year.
<unk> to approximately 314 money in renminbi drip.
Driven by the increase in revenue from both processing fees and storage fees.
During the second quarter.
The group recruited more than 19000 new subscribers.
Presenting an increase of 8% year over year, partially due to the low comparable base in the same quarter of last year.
Improved business environment.
And also also efforts during these challenging times.
As a result revenue generated from processing fees and other services increased by approximately 10% year over year to 180 million renminbi.
Which accounted for 58% of total revenue.
By the end of September 2021, our accumulated subscriber base expanded to over 938000.
And storage fee rapid news for the second quarter increased by 10% year over year to approximately 134 million renminbi.
Yeah.
Gross profit in the reporting quarter increased by 11% to approximately 268 million renminbi.
And gross margin improved to 85%.
84% of last year.
Economy of scale continue to drive margin improvement, but partially offset by higher labor costs.
In the second quarter.
Operating income increased by 15% year over year to approximately 161 million renminbi.
Mainly due to the top line growth coupled with a relatively moderate increase in SG&A expenses.
As a result operating margin improved to 51% from 49% of last year.
Depreciation and amortization expenses for the reporting quarter were 12 million renminbi.
Two last year.
Non-GAAP operating income increased by 14% year over year to 173 million renminbi.
And non-GAAP operating margin improved to 55% from 53% last year.
Sales and marketing expenses in the second quarter increased five 5% year over year to 57 million renminbi.
Primarily attributable to an increase in labor costs.
But at the same time, we continue to scale down marketing and promotional activities.
Sales and marketing expenses as a percentage of revenue decreased to 18% from 19% in the prior year period.
General and administrative expenses increased to approximately 45 million renminbi.
From 43 million renminbi of last year.
Mainly due to the increase in labor costs.
General and administrative expenses as a percentage of revenue.
Decreased to 14% from 15% of last year.
In the second quarter.
The company recognized a decrease of approximately 13 million renminbi in fair value of equity Securities.
Mark to market loss.
Compared to approximately 6 million renminbi of Mark to market gain in the prior year period.
In addition, during the reporting quarter, we did not record any dividend income from equity investments.
As the increase in operating income were offset by mark to market loss of equity Securities.
Income before income tax for the second quarter stood at 156 million renminbi.
Income tax expense for this quarter was 28 million renminbi.
Net income attributable to the company's shareholders decreased by 4% year over year to 126 million renminbi.
Basic and diluted earnings per ordinary share for the reporting quarter was 1.03 renminbi.
These are just the highlights of our second quarter results. We are now happy to turn to the floor for any questions.
Thank you ladies and gentlemen, Jessica question you May press one on your journey. Thank you Bob.
Zero, one Amit thank you Beth.
Okay.
Yeah.
Yeah.
Yeah.
So we have one first question from Mr. Jeff <unk> from Sappho sorry. Please go ahead.
Hello, and thank you for taking my questions.
Can you discuss the geographical breakdown of your new subscribers.
Also could you provide a payment of a breakout as well thank you.
Thank you for the questions.
For the for the second quarter, new subscriber breakdown by geographical region.
<unk> is as follows.
Major regions represent approximately 12%.
Of our total new subscribers.
Recorded in the second quarter.
Guangdong represented approximately 66% of our total new subscribers recorded in the second quarter and the remaining 21%.
New subscribers derived from the Zhejiang Province.
In terms of payment methods breakdown.
Approximately 30%.
Of new subscribers recorded during the second quarter elect the normal payment scheme or more commonly referred to as option one.
Of our payment option of a payment method.
Approximately 40%.
Of our new subscribers signed up during the second quarter.
Elected upfront payment.
More commonly known that option too.
And the remaining 30%.
Subscribers, who elected.
Installment payment plan.
Either in the form of three years or in the form of tenure.
Yeah.
Thank you, Sir we have more of them.
Ladies and gentlemen, I would like to remind you that if you wish to ask Watson chief spread because he will want to Nick Thank you Beth.
So we have next question is from Mr. Vin.
John from Panama's capital Sir Please go ahead.
Alright. Thanks.
Thank you for taking the question Sam John.
Can you talk about the timeline it might take for the special committee to evaluate the offer that was made nine months ago.
Number one.
Number two how do you think about the.
Uh huh.
Potential for a stock buyback what are the returns you might be able to achieve on deploying our cash for our stock buyback as opposed to there may be capex.
And then the third question is.
Do you have any.
Capex.
Estimates are a budget for next year. Thank you.
Thank you for the questions.
As you are aware the special committee.
Is formed to evaluate the non binding proposal.
Over by alternatives.
Alternative ocean to the company.
And I believe that the.
Independent of.
A special committee.
Taking the lead in evaluating the offer.
Unfortunately, I'm not in the position to discuss the details regarding the latest discussion.
But I'm sure that the.
Special Committee.
We'll try their very best to evaluate as well as come up with the appropriate recommended course of actions for for the company with the best interest of the shareholders and the company as a whole in their minds.
In terms of the company capital allocation plan.
We are constantly exploring different capital allocation decisions.
We have done obviously share repurchase in the past. We are also dividend now part of our income in a pause as well.
<unk>.
As for the time being we are also looking into other new opportunities that can potentially type.
<unk> diversified the company income streams and.
To a certain extent mitigate some of our June.
Geographical concentration risk.
With that being said, if the board decided to relaunch.
A share repurchase program or announce a dividend positions or even a potential acquisition in the future. We will definitely make those decision known to the market.
Through our announced an application.
In terms of capital expenditure.
For the time being.
Routine capital expenditure as you can see from our press releases.
For the past six months.
Our capital expenditure is approximately.
Roughly 6 million RMB and dose.
Capital expenditure were spent on the procurement on equipment.
In the absence.
Of.
Building out a new facilities.
Routine capital expenditure will mainly consist of the purchase of storage of equipment and the replacement of laboratory.
<unk> equipment.
That being said.
We are keeping a close eye in terms of.
In terms of our capacity utilization.
And.
If there is a need for it.
Further expansion in in our Star Trek therapies, we will definitely do so however currently.
We don't have an immediate plan to.
Expand our capacity.
At this point in time.
Yeah.
But obviously the capex benefit plans will change.
If the.
If the new subscriber numbers picked up significantly and we certainly hope that will be the case.
Okay.
Thank you Sir we have no other questions, ladies and gentlemen, I would like to remind you that if you Miss Jeff Glenn If you will.
One on maintaining thank you Pat.
Thank you Pat.
Another question from Mr. Tien Tsin from Bradesco began Sir please go ahead.
Thank you as a follow up what what do you estimate your current capacity utilization.
Okay.
For our Beijing facility.
The current capacity utilization rate is approximately 70%.
For our Guangdong facilities.
It was broadly similar.
Around between 65% to 70%.
J D facilities, probably has the lowest in terms of utilization rate, you're looking at probably less than 25%.
Thank you Sir.
We have no other questions back to you for the conclusion.
Thank you Claudio.
At this point there appears to be no more questions. So this concludes our earnings conference call for the fiscal 2022 second quarter. Thank you all very much for your participation and ongoing support.
Good day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation you may now disconnect.
[music].
Okay.
[music].
[music].
[music].
Welcome everyone to global cord Blood Corporation's earnings earnings Conference call for the fiscal year 2022 second quarter, all participants lines will be placed on mute during the presentation after which there will be a question and answer session to almost every one of chance to ask a question during the.
The Q&A session. Please limit yourself to one question at a time.
Now I would like to introduce you buy them get debate VP of corporate finance to begin the presentation. Madame. Please go ahead.
Thank you Claudio.
Good morning, everyone.
Welcome to our fiscal 2022 second quarter earnings conference call.
Yes 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.
Actual results could be materially different from these forward looking statements.
Kindly refer to our SEC filings for detailed discussions of potential risks.
In the interest of time, we will begin with our Ceo's remarks, followed by a report of our fiscal 2022 second quarter financials.
Then our CFO Mr. Albert Chen.
Our management will be available to answer questions during the QA session.
We understand investors and shareholders may have various questions to ask.
To give everyone a chance to ask questions. We'd appreciate if you could ask one question at a time.
Today on behalf of our CEO Tina.
I will read her prepared remarks.
The begin the presentation.
Good morning, everyone and welcome to our second quarter of fiscal 2022 earnings Conference call.
During the reporting quarters, the group managed to recruit 19000 in <unk>.
66, new subscribers.
Up 8% year over year.
As a result of the relatively low base in the previous year period.
And down 3% quarter over quarter in line with management's expectations.
That's the end of September 2021.
Our accumulated subscriber base surpassed 938000.
During the second quarter.
The business environment continue to improve.
Long standing challenging renamed.
As a result of the effective COVID-19 pandemic control measures implemented in our operating markets.
Potential clients, we're less concerned about hospital admissions foothold for us and <unk>.
<unk> impact on our business will gradually alleviated.
However.
As economic activities resumed.
Occasional local outbreaks.
Such in hospitals to maintain strict access policies.
Goodbye.
Hindering our sales activities and <unk>.
Hospital channels.
In addition, the overall number of women of Childbearing age and newborns continue to decline.
Given its intractable nature, we do not expect this demographic trend to reverse in the near future.
Compared to the previous quarters, there have not being many observable industry related policies or changes that affected the groups business in the second quarter.
Regarding the three child policy.
Various regulatory bodies in China rolled out serious to a follow up rules and measures aimed at reducing the cost of child bearing and raising children.
Such as expansion of health care services.
Rectification of off campus education and training.
Curbing of house prices in select school districts among others.
Despite these assets current contributions of our family search trials.
Have yet to make a substantially notable difference to the group's new subscribers.
As discussed last quarter.
SUNS over cord blood banking licensing regulations, and bio security laws have yet to subside.
The management team continues to closely monitor any new developments related to these policies and potential industry wide implications that may be announced.
With this in mind the management team maintains the guideline for the fiscal 2022, new subscriber target.
Which is expected to fall within the range of 72200 75000.
Facing regulatory and market uncertainties and the management team will continue to focus on the Companys long term development.
Maintain active communications with the relevant regulatory agencies.
Expense marketing and sales channels and.
And carry out extensive work as we dive deep into new business development opportunities.
This concludes my remarks regarding our fiscal 2022 second quarter results.
Thank you for your ongoing support of global cord Blood Corporation.
Now I will turn the call over to our CFO, Mr. Albert Chen to discuss our second fiscal quarter financial performance.
Mr. Chen Please go ahead.
Good morning, everyone. Thank you for joining our call today.
In the second quarter.
Revenues increased by 10% you will say year to approximately 314 million renminbi drift.
Driven by the increase in revenue from both processing fees and storage fees.
During the second quarter.
The group recruited more than 19000 new subscribers.
Presenting an increase of 8% year over year, partially due to the low comparable base in the same quarter of last year.
The improved this is environment and.
And also also effort during these challenging times.
As a result revenue generated from processing fees and other services increased by approximately 10% year over year to 180 million renminbi.
Which accounted for 58% of total revenue.
By the end of September 2021, our accumulated subscriber base expanded to over 938000.
And storage fee rapid news for the third quarter increased by 10% year over year to approximately 134 million renminbi.
Gross profit in the reporting quarter increased by 11% to approximately 268 million renminbi.
And gross margin improved to 85% from 84% of last year.
The economy of scale continue to drive margin improvement, but partially offset by higher labor costs.
In the second quarter.
Operating income increased by 15% year over year to approximately 161 million renminbi may.
Mainly due to the top line growth coupled with a relatively moderate increase in SG&A expenses.
As a result operating margin improved to 51%.
49% of last year.
Depreciation and amortization expenses for the reporting quarter were 12 million renminbi.
Similar to last year.
Non-GAAP operating income increased by 14% year over year to 173 million renminbi.
And non-GAAP operating margin improved to 55% from 53% last year.
Sales and marketing expenses in the second quarter increased five 5% year over year to 57 million renminbi.
Primarily attributable to an increase in labor costs.
But at the same time, we continue to scale down marketing and promotional activities.
Sales and marketing expenses as a percentage of revenue decreased to 18% from 19% in the prior year period.
General and administrative expenses increased to approximately 45 million renminbi.
From 43 million renminbi of last year.
Mainly due to the increase in labor costs.
General and administrative expenses as a percentage of revenue.
<unk> decreased to 14% from 15% of last year.
In the second quarter.
The company recognized a decrease of approximately 13 million renminbi in fair value of equity Securities.
Our mark to market loss.
<unk> to approximately 6 million renminbi of Mark to market gain in the prior year period.
In addition, during the reporting quarter, we did not record any dividend income from equity investments.
As the increase in operating income were offset by mark to market loss of equity Securities.
Income before income tax for the second quarter stood at 156 million renminbi.
Income tax expense for this quarter was 28 million renminbi.
Net income attributable to the company shareholders decreased by 4% year over year to 126 million renminbi.
Basic and diluted earnings per ordinary share for the reporting quarter was one <unk> III from MB.
These are just the highlights of our second quarter results. We are now happy to turn to the floor for any questions.
Thank you, ladies and gentlemen, Jessica question, you May press <unk> one.
One I missed anything.
If you will when I'm looking at thank you Beth.
We have one first question from Mr. Jeff how leaver from Stockholm, Sorry. Please go ahead.
Hello, and thank you for taking my questions.
Can you discuss the geographical breakdown of your new subscribers.
And also could you provide a payment method breakdown as well thank you.
Thank you for the questions.
For the for the second quarter of new subscriber breakdown by geographical region.
<unk> is as follows.
Beijing regions represent approximately 12%.
Our total new subscribers.
<unk> in the second quarter.
Guangdong represented approximately 66% of our total new subscribers recorded in the second quarter and the remaining 21%.
New subscriber is derived from the judge on profit.
In terms of payment methods breakdown.
Approximately 30%.
Of both new subscribers recorded during the second quarter elect the normal payment scheme, all walk commonly referred to as option one.
Payment option of a payment method.
Approximately 40%.
All of our new subscribers signed up during the second quarter.
Elected upfront payment.
More commonly known that option too.
And the remaining 30%.
Subscribers, who elected.
Installment payment plan.
Either in the form of three years or in the form of tenure.
Thank you, Sir we have a lot of other questions, ladies and gentlemen, I would like to remind you that if you wish to ask what chiefs, Brett because he will one.
You bet.
So we have next question is from Mr. Vin John from Panamax could be done Sir. Please go ahead.
Hi, Thank you for taking the question Sam John.
Can you talk about the timeline it might take for the special committee to evaluate the offer that was made nine months ago. That's question number one.
Number two how do you think about the.
Potential for a stock buyback what are the returns you might be able to achieve on deploying our cash for a stock buyback as opposed to there maybe capex.
And then the third question is.
Do you have any.
Capex.
Estimates or a budget for next year. Thank you.
Thank you for the questions.
As you're all aware the special Committee.
Is formed to evaluate the non binding proposal.
Offered by alternative or alternate ocean to the company.
And I believe that the.
Independent of.
The Special Committee is taking the lead in evaluating the offer.
Unfortunately.
Lee I'm not.
Not in the position to discuss the details regarding the latest discussions.
<unk>.
But I'm sure that the.
The Special Committee will try their best to evaluate as well as come up with the appropriate recommended course of action.
<unk> for the company with the best interest of the shareholders and the company as a whole in Denmark.
In terms of the company capital allocation plan.
We are constantly exploring different capital allocation decisions.
We have done obviously share repurchase in the past we are also dividend.
Part of our income in a pause as well.
And as.
As for the time being.
We are also looking into other new opportunities that can potentially type.
<unk> diversified the company income streams and.
To a certain extent mitigate some of our June.
Geographical concentration risk.
With that being said, if the fourth decided to relaunch.
A share repurchase program.
Announced a dividend positions or even a potential acquisition in the future.
Definitely make those decision known to the market.
Through our announced an application.
In terms of capital expenditure.
For the time being.
Routine capital expenditure as you can see from our press releases.
For the past six months.
Our capital expenditure is approximately.
Roughly 6 million RMB and dose.
Capital expenditures were spent on the procurement on equipment.
In the absence.
Paul.
Building out a new facilities.
Routine capital expenditure will mainly consist of the purchase all storage of equipment and replacement of laboratory.
Laboratory equipment.
That being said.
We are keeping a close eye in terms of.
In terms of our capacity utilization.
And.
If there is a need for further.
Further expansion in in in our storage facilities, we will definitely do so however currently.
We don't have an immediate plan to.
Expand our capacity.
As of this point in time.
Yes.
But obviously the capex expenditure plans will change.
Yes.
The.
If the new subscriber numbers picked up significantly and we certainly hope that will be the case.
Thank you Sir we have no other questions gentlemen, I would like to remind you that if she was Jeff Glenn If you will one antenna. Thank you you bet.
You have Ryan I'm going to be bad.
Another question from Mr. Tien Jen from better musket began Sir please go ahead.
Thank you as a follow up what what do you estimate your current capacity utilization is.
The current capacity utilization rate is approximately 70%.
For our Guangdong facilities.
It was broadly similar.
Around between 65% to 70%.
<unk> probably has the lowest in terms of utilization rate, you're looking at probably less than 25%.
Thank you Sir.
We have no other questions back to you for the conclusion.
Thank you Raphael.
Hmm.
At this point there appears to be no more questions. So this concludes our earnings conference call for the fiscal 2022 second quarter.
You all very much for your participation and ongoing support.
Have a great day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation you may now disconnect.