Global Cord Blood Corporation (CO) Q3 2021 Earnings Call Transcript

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Global Cord Blood Corporation (CO 8.00%)
Q3 2021 Earnings Call
Feb 25, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome everyone to Global Cord Blood Corporation Earnings Conference Call for the fiscal year 2021 Third Quarter.

[Operator Instructions] Now I would like to introduce Ms. Cathy Bai, VP of Corporate Finance to begin the presentation. Please.

Cathy Bai -- Vice President of Corporate Finance

Thank you, Aaron. Good morning, everyone. Welcome to our fiscal 2021 third 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 discussions of potential risks. In interest of time, we will begin with our CEO's remarks followed by a report of our fiscal 2021 third quarter financials given by our CFO, Mr. Albert Chuen. Our management will be available to answer questions during the QA session. 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. Let's begin our presentation.

Good morning, ladies and gentlemen. Welcome to our third quarter fiscal 2021 earnings conference call. During the reporting quarter, as the COVID-19 pandemic persisted and because the on and off partial lock down, hospitals in our operating markets continue to restrict access. Meanwhile newborn numbers continue to trend downwards. These combined factors continue to put pressure on client conversion. Despite these challenges communities continue to adapt to various pandemic measures and the management team continue to refine the Group's resource deployment while adjusting sales and marketing strategies.

As a result we managed to recruit 17,802 new subscribers this quarter, in line with management expectations. By the end of December 2020, our accumulated subscriber base had surpassed 882,000. During the third quarter National Health Commission announced the new policy that no cord blood banking license applications will be accepted in 2021, with no further regulatory details provided.

Despite the uncertainties surrounding regulation of the cord blood banking industry in China, our past accomplishments have laid a solid foundation in regards to market education and awareness. Thereby enabling the public in our operating markets to be more knowledgeable on existing and potential medical benefits of cord blood stem cells.

Under the current circumstances, we are determined to maintain our quality of service, strengthen our brand name and solidify and expand our hospital channels as we invigorate our front-line teams and continue to penetrate existing markets. At the same time, we will maintain our dialogues with the regulatory bodies, as we continue to source and screen new opportunities for business development to expand our market coverage and lines of service.

Looking ahead, the year of Ox generally does not have a material effect on the overall downtrend in newborn numbers. However based on our observations in the past year, we must remain cautious as the COVID-19 pandemic continues to impact short term newborn numbers and front-line client access and conversion. All things considered, the management team recommends keeping the annual new subscriber target for fiscal 2021 in the range of 62,267.

This concludes my remarks regarding our fiscal 2021 third quarter financial results. Thank you for your ongoing support. I will now turn over the call to our CFO, Mr. Albert Chuen to address our financial performance for the reporting quarter.

CHEN Bing Chuen, Albert -- Chief Financial Officer and Director

Good morning, everyone. Thank you for joining our call today. In the third quarter, revenues decreased by 13% year-over-year to approximately RMB291 million, as the decline in new subscribers led to a decrease in revenues from Processing Fees and other services. Due to the ongoing COVID-19 impact and fewer new borns in our operating markets, the group recruited 17,802 new subscribers in the reporting quarter; representing a decrease of 24% year-over-year. Consequently revenues generated from Processing Fees and other services decreased by 24% year-over-year to RMB165 million, which accounted for approximately 57% of total revenues compared to 65% in the prior year period.

By the end of December 2020 our accumulated subscriber base exceeded 882,000. Accordingly, Storage Fees Revenues for the third quarter increased by 8% year-over-year to approximately RMB126 million. Gross profit in the third quarter decreased by 13% year-over-year to approximately RMB246 million. While gross margin remained largely stable at 85%, that is because the general cost reduction due to lower volumes were offset by higher raw material and labor costs.

Operating income for the third quarter decreased by approximately 19% year-over-year to RMB124 million. And operating margin was 43% compared to 46% of last year. Depreciation and amortization expenses for the reporting quarter were approximately RMB12 million, similar to the prior year period. Non-GAAP operating income decreased by 17% year-over-year to approximately RMB136 million. Non-GAAP operating margin was 47% in the reporting quarter. Research and development expenses in the third quarter increased to RMB9 million from RMB6 million in the prior year period. As we continue to support ongoing research efforts and launch of new research initiatives.

During the reporting quarter, higher advertising and promotional expenses were partially offset by lower staff remuneration as we trended down our sales force head count. As a result, sales and marketing expenses was down by 9% year-over-year. And as a percentage of revenue, it now represents approximately 24% of revenue as compared to 23% of last year. General and Administrative expenses decreased by more than 8% year-over-year to RMB44 million, mainly due to reduced staff costs and professional fees but partially offset by higher provisions. General and Administrative expenses as a percentage of revenue was 15% compared to 14% of last year.

In the third quarter, we recognized an approximately RMB6 million increase in fair value of equity securities or mark-to-market gain as compared to a mark-to-market gain of RMB8 million of last year.

All-in-all income before income tax for the third quarter decreased by 19% year-over-year to approximately RMB139 million. Income tax expense for the third quarter was RMB21 million. Net income attributable to the Company's shareholders decreased by approximately 20% year-over-year to RMB117 million. Net margin for the third quarter was 40%. Basic and diluted earnings per ordinary share for the reporting quarter was RMB0.96.

These are the highlights of our third quarter results. We are now happy to turn to the floor for any questions.

Questions and Answers:

Operator

Thank you, management. [Operator Instructions].

Our first question is Sandy Mehta, Value Investment Principals.

Sandy Mehta -- Value Investment Principals -- Analyst

Yes, good evening. Now that COVID has receded quite a bit, do you expect subscriber growth going forward to pick up? Thank you so much.

CHEN Bing Chuen, Albert -- Chief Financial Officer and Director

Thank you for the questions. I think the current market situations reflect couple of issue, which we need to address. Obviously, the overall impact with respect to COVID has subsided substantially, safe for the fact that there is still mini outbreak here and there, on and off, which is kind of depressing to a certain extent.

But I think the challenges that we're facing right now is related to the hospital access, which really is pushing us away from a lot of normal client interactions and in order to address those, we have migrate to online platform and rely on a lot of additional marketing initiatives, to maintain active in terms of client recruitment. But right now I think it will be too early to tell, as to when life will be going back to normal. In another words, it will be hard to speculate as to when we will be able to regain normal access via our hospitals channel. So that is obviously an uncertainty that we are facing. And we are trying our very best to address those issues.

The other issue, which has more to do with the macro environment is the overall number of babies born in Beijing, Guangdong as well as Zhejiang are still in a down trend. And obviously, the impact is somehow mitigated or offset by -- for example, factors such as globalize -- not globalization -- I mean, urbanization, which is -- which helped to ease the pain a little. But as we pointed out in our CEO remarks, we are not extremely optimistic with respect to the number of babies born in the year of the Ox. So I guess right now, we are currently still taking a relatively cautious approach. And in terms of outlook, obviously, we will update our full year guidance, when we announce our full year results in June. But right now I think we are optimistic, I mean we are cautiously optimistic, that's probably the best way to put it.

Operator

Our next question is Cyrille Pichot, from Altimeo Asset Management.

Cyrille Pichot de Cayeux -- Altimeo Asset Management -- Analyst

Yeah, hello. Thank you for taking my question. So I have two small question, the first one is regarding a potential acquisition. I mean, did you -- because you are looking at some acquisition -- you started a few years ago, but as of today, there is nothing announced regarding a potential acquisition. Do you expect that potentially you will announce something in the near future, would be may be good for to diversify your business in terms of geographic and business also?

And my second question is regarding capital markets and as you perfectly know there is a threat of the listing from the U.S. exchange for Chinese U.S. listed company. Lot of Chinese U.S. listed company have implemented a secondary listing in Hong Kong. Do you expect expect potentially in the future to take care of that because it's a risk, I think for U.S. shareholders and to mitigate this risk would be good and cautious to get a secondary listing? Thank you.

CHEN Bing Chuen, Albert -- Chief Financial Officer and Director

Thank you for the questions. With respect to the M&A initiatives, there are currently -- we are looking at several interesting opportunities right now. Obviously this may still be too early to tell whether those opportunities will be materialized. I don't anticipate, that we are -- at least we have not reached a state that we are -- that we intend to enter into any definitive agreements, but we are certainly looking at something quite interesting right now. And it basically involves diversify or expanding our services portfolio -- fair to say, fair to say.

With respect to the capital market plan, obviously there is rules and regulation from the prior administrations with respect to the -- targeting some U.S. listed issuers -- foreign issuer listed in U.S. I should say. So we are also monitoring the situations. To answer your question in short, is that right now, we don't have an immediate plan to seek a separate listing somewhere else, but sure, we will keep that option open for time being.

Operator

Our next question is Ken Oliver from Star Assess fund [Phonetic].

Unidentified Participant

Hello, thank you for taking my question. Can you please share your new subscriber breakdown by region and payment options, during the quarter as well?

Thank you.

CHEN Bing Chuen, Albert -- Chief Financial Officer and Director

Thank you for the questions. In terms of new subscriber geographical breakdown, approximately 68% of our new subscribers signed up in the third quarter were derived from our Guangdong market, 22% came from Zhejiang and the remaining 10% came from Beijing.

In terms of payment option breakdown, the upfront payment accounted for approximately 41% of our total new subscriber signed up in the third quarter of fiscal 2021. Normal payment options about 27% and other options plus installment account for the basically the balance.

Operator

[Operator Instructions] There are currently no more questions. Now I'll pass back the time to Cathy. Thank you.

Cathy Bai -- Vice President of Corporate Finance

Thank you, Aaron. This concludes our earnings conference call, for the fiscal 2021 third quarter. Thank you all very much for your participation and ongoing support. Have a great day.

Aaron, you may now disconnect.

Operator

Thank you.

Duration: 59 minutes

Call participants:

Cathy Bai -- Vice President of Corporate Finance

CHEN Bing Chuen, Albert -- Chief Financial Officer and Director

Sandy Mehta -- Value Investment Principals -- Analyst

Cyrille Pichot de Cayeux -- Altimeo Asset Management -- Analyst

Unidentified Participant

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