Global Cord Blood Corporation (CO) Q1 2022 Earnings Call Transcript

Image source: The Motley Fool.

Global Cord Blood Corporation (CO -7.41%)
Q1 2022 Earnings Call
Aug 31, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome everyone to Global Cord Blood Corporation Earnings Conference Call for the Fiscal 2022 First Quarter. [Operator Instructions] Now I would like to introduce Madam, Cathy Bai, VP of Corporate Finance to begin the presentation. Madam, please go ahead.

Cathy Bai -- Vice President, Corporate Finance

Thank you, Greg. Good morning, everyone. Welcome to our fiscal 2022 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 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 first quarter financials given by our CFO, Mr. Albert Chen. Our management will be available to answer questions during the QA session. We understand investors and shareholders 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. Let's begin our presentation.

Zheng Ting, Tina -- Chairperson, Chief Executive Officer, Director, and Chief Executive Officer of Beijing Division

Good morning, everyone, and welcome to our first quarter fiscal 2022 earnings conference call. During the reporting quarter, the Group managed to recruit 19,673 new subscribers, up by 14.2% year-over-year as a result of the relative to the low base in the previous year and up by 1.6% quarter-over-quarter, in line with management's expectations.

At the end of June 2021, our accumulated subscriber base had surpassed 920,000. As a result of the effective control measures implemented in China, the impact of COVID-19 among Chinese consumers has gradually alleviated as our potential clients became less concerned about hospital admissions for child birth, the pandemic impact on our business gradually decreased. Despite this progress, we remain cautious about the general business environment as overall new born numbers remain on a downward trend. Certain hospitals continue to maintain strict access policies compared to pre-pandemic and occasional outbreaks in China still trigger localized lockdown as economic activities resume.

Overall, concerns about the cord blood banking licensing regime and biosecurity laws have yet to subside and the management team continues to pay close attention to new developments related to such policies as well as any potential industrywide implications. We will not rule out the possibility that further details on government policy implementations will be announced from time-to-time. As such, the company will remain vigilant and be prepared to respond to any shift in the competitive industry landscape.

Meanwhile, due to the lack of women of childbearing age and the persistence of high cost to raise [Phonetic] child. The three child policy stimulus has yet to create a notable boost in the newborn numbers in our operating markets. Despite this, it is worth mentioning that a top government decision recently published on July 20th, discusses a target plan to reduce the cost of raising children and increase fertility rate by 2025. In light of this, we will closely monitor future announcements and the impact of supportive policies and measures to follow. With this in mind, the management team has determined the fiscal 2022 new subscriber target is expected to remain in the range of 72,000 to 75,000.

As a result of regulatory and market uncertainties, the management team actively communicates with relevant regulation agencies, while continuing to evaluate alternative scenarios. We will carry on our efforts to expand our marketing and sales channels and pursue both on and offshore business development opportunities. We will continue to execute upon our goals through enhanced customer viscosity, foster new business growth and income sources, and improve the Group's overall risk resistance capacity. This concludes my remarks regarding our fiscal 2022 first 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, who will discuss our first quarter financial performance. Mr. Chen, Please go ahead.

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

Good morning, everyone. Thank you for joining our call today. In the first quarter, revenues increased by 12% year-over-year to approximately RMB315 million, mainly driven by the increase in processing fee revenues. During the reporting quarter, the Group recruited over 19,600 new subscribers, representing an increase of 14% year-over-year due to the relatively low comparable base in the first quarter of last year coupled with gradually improved consumer sentiment as various COVID-19 containment measures started to take effect. As a result, revenue generated from processing fees and other services increased by 14% year-over-year to approximately RMB185 million, which accounted for 59% of total revenues. By the end of June 2021, our accumulated subscriber base expanded to over 920,000. Accordingly, storage fee revenues for the first quarter increased by 9% year-over-year to RMB130 million.

Gross profit in the first quarter increased by approximately 13% to RMB267 million, and gross margin improved by 30 basis points from last year period to approximately 85%. Operating income for the first quarter increased by 17% year-over-year to RMB157 million, and operating margin improved to approximately 50% from 48% of last year because SG&A expenses only increased slightly. Depreciation and amortization expenses for the reporting quarter were approximately RMB12 million. Non-GAAP operating income increased by approximately 16% year-over-year to RMB169 million, and non-GAAP operating margin improved by 1 percentage point year-over-year to 53%.

Sales and marketing expenses in the first quarter increased by 8% year-over-year to RMB59 million, mainly due to an increase in sales incentives as we carefully redeployed sales and marketing resources during the consumer sentiment recovery rephase, while facing occasional localized lockdown due to various COVID-19 clusters. Sales and marketing expenses as a percentage of revenue decreased to 19% from 20% in the prior year period. General and administrative expenses increased by 4% year-over-year to approximately RMB46 million, mainly due to increases in accounts receivable provisions and professional fees, but was partially offset by decrease in overhead spending. General and administrative expenses as a percentage of revenue decreased to 15% in the reporting quarter.

In the first quarter, we recognized an approximately RMB5.6 million increase in fair value of equity securities or mark-to-market gain compared to over RMB18 million in mark-to-market gain in last year. In the reporting quarter, we also recorded approximately RMB1 million in dividend income from equity investments compared to no such income in the prior year period as a result of the increases in operating income and dividend income, partially offset by the decrease in mark-to-market gains. Income before income tax for the first quarter increased by 7% year-over-year to RMB172 million.

Net income attributable to the company's shareholders increased by 3% year-over-year to RMB136 million. Basic and diluted earnings per ordinary share for the reporting quarter increased by approximately 3% to RMB1.12. These are the highlights of our first quarter financial results. We are happy to turn to the floor for any questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we have one question from Mr. Bill Jones. Sir, please begin.

Bill Jones -- Analyst

Hello, thank you for taking my questions. Can you provide a breakdown of your new subscribers? Also what was the payment breakdown of your respective services? Thank you.

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

Thank you for the questions. In terms of -- in terms of new subscriber breakdown by geographical regions, approximately two thirds, like 67% of our new subscribers are derived from the Guangdong province, approximately 20% of our new subscribers derived from the Zhejiang province, and the rest came from the Beijing municipality area.

In terms of payment option breakdown, approximately 30% of our new subscribers elect the normal payment option, approximately 42% new subscribers elect the upfront payment option, and the remaining balance are people electing the instalment payment options, which varies from three years to 10 years.

Operator

Okay. We don't have any more question for the moment. [Operator Instructions] We have a new question from [Indecipherable] Please go ahead.

Unidentified Participant

Hi, thanks for taking my call. What would you say is your excess cash balance that you have available for either acquisitions or returning cash to shareholders and how do you think about those two options?

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

The capital on hand as you are aware is in excess of RMB6 billion and half of which or close to half of which is the result of people electing to pay the upfront payment option, which result in deferred revenue. Fair to say that the company right now is in a relatively strong financial position to potentially withstand any potential regulatory changes in the cord blood banking industry in China as well as the our ability to potentially pick on additional acquisition or diversification projects. So this is probably the best way to put it.

But as you are aware, the company is taking on a relatively prudent approach lately, especially taking into considerations of various changes in the regulatory environment. I trust that many of you are aware that there are many new regulations coming out from the authorities in the PRC, which governs from how consumers behave, encouraging more birth, and also maybe reducing children reliance on mobile games. So lately, one of the policy which we highlighted in our 20-F as well as the introduction of the biosecurity law as well as the leases, couple of banking licensing policy as well. So as mentioned in our CEO remarks, we are living in a very interesting time right now. So it is possible that we -- it is possible that more regulations with respect to cord blood banking or healthcare industry as a whole may come out from time to time. So we are also carefully evaluating our options as we speak. I guess, right now, because of all the new regulations coming into play, it is better to take a more prudent approach when evaluating our options.

Thank you. [Operator Instructions] It seems that there is no further question. At this point, I will turn the call back to Madam, Cathy Bai. Please go ahead.

Cathy Bai -- Vice President, Corporate Finance

Thank you, Greg. This concludes our earnings conference call for the fiscal 2022 first quarter. Thank you all very much for your participation and ongoing support. Have a great day. Greg, you may now disconnect.

Operator

[Operator Closing Remarks]

Duration: 20 minutes

Call participants:

Cathy Bai -- Vice President, Corporate Finance

Zheng Ting, Tina -- Chairperson, Chief Executive Officer, Director, and Chief Executive Officer of Beijing Division

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

Bill Jones -- Analyst

Unidentified Participant

More CO analysis

All earnings call transcripts