Global Cord Blood Corporation (CO) on Q2 2022 Results - Earnings Call Transcript
Operator: Welcome everyone to Global Cord Blood Corporation Earnings Conference Call for the Fiscal 2022 Second Quarter. All participant lines will be placed on mute during the presentation. After which, there will be a question-and-answer session. . Now I would like to introduce you madam, Cathy Bai, VP of Corporate Finance to begin the presentation. Madam, please go ahead. Cathy Bai: Thank you, Claudia. Good morning, everyone. Welcome to our fiscal 2022 second 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 second quarter financials given by our CFO, Mr. Albert Chen. Our management will be available to answer questions during the Q&A 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 1 question at a time. Today, on behalf of our CEO, Tina, I will read her prepared remarks. Let's begin the presentation. Good morning, everyone. And welcome to our second quarter fiscal 2022 earnings conference call. During the reporting quarter, the group managed to recruit 19,066 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 expectation. At the end of September 2021, our accumulated subscriber base surpassed 938,000. During the second quarter, although business environments continue to improve, long standing challenges remained. As a result of the effective COVID-19 pandemic control measures implemented in our operating market potential clients were less concerned about hospital admissions for childbirth, and pandemic impact on our business were gradually alleviated. However, as economic activities resumed, occasional local outbreaks forced certain hospitals to maintain strict access policies, thereby still hindering our sales activities in 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 group's business in the second quarter. Regarding the three child policy, various regulatory bodies in China rolled out Series 2 or follow up rules and measures aimed at reducing the cost of childbearing and raising children. Such as expansion of child care services, ratification of off-campus education and training and curbing of house prices in select school districts among others. Despite these efforts, current contribution of a family’s third child 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 while security laws have yet to subside. The management team continues to closely monitor any new development related to these policies and potential industrywide 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 72,000 to 75,000. Facing regulatory and market uncertainties, the management team will continue to focus on the company's long-term development, maintain active communications with relevant regulatory agencies, expand marketing and sales channels and carry out extensive work as we dive deep into new business development opportunities. This concludes my remarks regarding our fiscal 2020 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. Albert Chen : Good morning, everyone. Thank you for joining our call today. In the second quarter revenues increased by 10% year-over-year to approximately RMB314 million, driven by the increase in revenue from both processing fees and storage fees. During the second quarter, the group recruited more than 19,000 new subscribers, representing an increase of 8% year-over-year, partially due to the low comparable base in the same quarter of last year, the improved business environment and also our sales efforts during these challenging times. As a result, revenues generated from processing fees and other services increased by approximately 10% year-over-year to RMB180 million which accounted for 58% of total revenues. By the end of September 2021, our accumulated subscriber base expanded to over 938,000 and storage fee revenues for the second quarter increased by 10% year-over-year to approximately RMB134 million. Gross profit in the reporting quarter increased by 11% to approximately RMB268 million and gross margin improved to 85% from 84% of last year. Economy of scale continued 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 RMB161 million 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 RMB12 million similar to last year. Non-GAAP operating income increased by 14% year-over-year to RMB173 million and non-GAAP operating margin improved to 55% from 53% last year. Sales and marketing expenses in the second quarter increased by 5% year-over-year to RMB57 million, 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 RMB45 million from RMB43 million 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 RMB13 million in fair value of equity securities or mark-to-market loss compared to approximately RMB6 million of mark-to-market gains 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 a mark-to-market loss of equity securities income before income tax for the second quarter stood at RMB156 million. Income tax expense for this quarter was RMB28 million. Net income attributable to the company's shareholders decreased by 4% year-over-year to RMB126 million. Basic and diluted earnings per ordinary share for the reporting quarter was RMB1.03. These are just the highlights of our second quarter results. We are now happy to turn to the floor for any questions Operator: Thank you. So we have 1 first question from Mr. Jeff Oliver from Star Funds. Sir, please go ahead. Jeff Oliver : Hello. 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. Albert Chen : Thank you for the questions. For the second quarter new subscribers' breakdown by geographical regions is as follows. Beijing 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 1 of our payment option -- of our payment method. Approximately 40% of our new subscribers signed up during the second quarter elected upfront payment or more commonly known as Option 2. And the remaining 30% are subscribers who elected installment payment plan either in the form of 3 years or in the form of 10 years. Operator: Thank you, sir. We have no other questions. So we have next question from Lin John from Panamax Capital. Sir, please go ahead. Unidentified Analyst : Hi. Thank you for taking my question. It's Sam John . Can you talk about the time line it might take for the special committee to evaluate the offer that was made 9 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 your cash for a stock buyback as opposed to maybe CapEx? And then the third question is do you have any CapEx estimates or a budget for next year? Thank you. Albert Chen : Thank you for the questions. As you're all aware, the special committee is formed to evaluate the non-binding proposal offered by Alternate Ocean to the company. And I believe that the independent or special committee is taking the lead in evaluating the offer. Unfortunately, I'm not in the position to discuss the details regarding the latest discussions. But I'm sure that the special committee will try their very best to evaluate as well as come up with the appropriate recommended course of action for the company with the best interest of the shareholders and the company as a whole in their mind. In terms of the company capital allocation plan. We have constantly exploring different capital allocation decisions. We have done obviously share repurchase in the past. We have also dividend out part of our income in the past as well. And as for the time being, we are also looking into other new opportunities that can potentially diversify the company income streams and to a certain extent mitigate some of our geographical concentration risk. With that being said if the board decided to relaunch a share repurchase program or announce a dividend position or even a potential acquisition in the future we will definitely make those decisions known to the market through our announcements and publication. In terms of capital expenditure for the time being, routine capital expenditure as you can see from our press releases. For the past 6 months our capital expenditure is approximately roughly RMB6 million and those capital expenditure were spent on the procurement on equipment in the absence of building out new facilities, routine capital expenditure will mainly consist of the purchase of storage equipment and the replacement of laboratory equipment. But with that being said we are keeping a close eye in terms of our capacity utilization. And if there is a need for further expansion in our storage facilities, we will definitely do so. However currently, we don't have an immediate plans to expand our capacity as of this point in time. But obviously the capital expenditure plan will change if the new subscriber numbers picked up significantly. And we certainly hope that will be the case. Operator: Thank you, sir. We have no other questions. We have another question from Mr. Sam John from Panamax Capital. Sir, please go ahead. Unidentified Analyst : Thank you. As a follow-up, what do you estimate your current capacity utilization is? Albert Chen : For our Beijing facility, the current capacity utilization rate is approximately 70%. For our Guangdong facility it's broadly similar around between 65% to 70%. And Zhejiang facilities probably has the lowest in terms of utilization rate. You're looking at probably less than 25%. Operator: Thank you, sir. We have no other questions. Back to you for the conclusion. Cathy Bai : Thank you, Claudia. At this point, there appears to be no questions. So this concludes our earnings conference call for the fiscal 20222 second quarter. Thank you all very much for your participation and ongoing support. Have a great day. Operator: Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
Class Action Lawsuit Filed Against Global Cord Blood Corporation by Rosen Law Firm
Rosen Law Firm's Class Action Lawsuit Against Global Cord Blood Corporation
Rosen Law Firm's announcement of a class action lawsuit against Global Cord Blood Corporation (NYSE: CO) (OTC: CORBF) has stirred significant attention among investors and market watchers. The lawsuit centers on allegations that the company engaged in misleading practices and failed to act in the best interests of its shareholders, particularly concerning its capital allocation strategy and the rejection of going-private offers in favor of a questionable acquisition. These actions, according to the lawsuit, were designed to benefit insiders and related parties at the expense of the broader investor base, leading to financial losses when these details became public.
The financial metrics of Global Cord Blood Corporation provide a backdrop against which these allegations gain further context. With a price-to-earnings (P/E) ratio of approximately 5.22, CO's shares appear to be trading at a low price relative to its earnings, suggesting that the market may have perceived the company as undervalued or that investors had high expectations for its future profitability. The price-to-sales (P/S) ratio of about 2.32 indicates that investors were willing to pay $2.32 for every dollar of sales, a metric that can reflect the market's optimism about the company's growth prospects. However, these seemingly positive financial indicators, including an earnings yield of roughly 0.19% and a strong liquidity position as evidenced by a current ratio of approximately 10.73, are overshadowed by the lawsuit's allegations.
The lawsuit's focus on the company's capital allocation decisions, particularly the rejection of going-private offers and the acquisition of Cellenkos Inc. for over $1 billion, raises questions about the alignment of these decisions with shareholder interests. The acquisition, paid for in part with Global Cord shares, and the decision to reserve funds for insiders, as alleged, could be seen as moves that potentially diluted shareholder value and diverted company resources away from profitable opportunities. These actions, if proven true, might explain why, despite favorable financial ratios, the company's stock performance and investor confidence could have been negatively impacted.
Investors who suffered significant losses are now faced with a critical deadline of June 24, 2024, to potentially serve as lead plaintiff in the class action lawsuit. The Rosen Law Firm's track record, including securing over $438 million for investors in 2019 alone, underscores the potential for recovering damages. However, the lawsuit also highlights the importance of transparency and fiduciary responsibility in corporate governance, especially in decisions that can significantly affect shareholder value.
For investors of Global Cord Blood Corporation, the unfolding legal battle and its implications for corporate governance and investor rights will be closely watched. The allegations, if substantiated, could not only lead to financial restitution for affected investors but also prompt a reevaluation of corporate practices and governance standards within the industry. As the case progresses, the financial metrics and the company's strategic decisions will be scrutinized in the context of their impact on shareholder value and the broader market's trust in CO.
