Global Cord Blood Corporation (CO) on Q2 2021 Results - Earnings Call Transcript
Operator: Welcome to Global Cord Blood Corporation’s Earnings Conference Call for the Fiscal 2021 Second Quarter. All participants’ lines will be placed on mute during presentation. After which, there will be a question-and-answer session. To allow everyone a chance to ask a question during the Q&A session, please limit your question to one question at a time. Now, I would like to introduce Ms. Cathy Bai, Vice President of Corporate Finance to begin the presentation. Please Cathy Bai over to you. Cathy Bai: Thank you, Chi. Good morning everyone. Welcome to our fiscal 2021 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. Ting Zheng: Good morning, ladies and gentlemen. Welcome to our second quarter fiscal 2021 earnings conference call. During this reporting quarter, the COVID-19 pandemic and the ongoing impact on consumer sentiments continue to affect our operations. As the management team continues to adjust its sales and marketing tactics based on the changes in the field, the Group managed to recruit 17,643 new subscribers this quarter, down by 18.1% year-over-year and up by 2.4% quarter-over-quarter, in line with management’s expectations. By September 30, 2020, our accumulated subscriber base expanded to over 867,000. During the second quarter, there was a noticeable decline in newborn numbers across Beijing, Guangdong and Zhejiang, although, the magnitude of such declines varies across this different regions. In addition, anti-trans pandemic measures tend to vary from region-to-region. At some hospitals still adopted stricter entry and exit policy, which hindered our ability to reach potential clients. Meanwhile, due to the COVID-19 impact household tends to prioritize spending related to pandemic prevention over other value-added healthcare services, which further hindered our client conversion assets. We also believe that consumer remain cautious as the rate of economic recovery has varied across industries and regions in China. Together these factors continue to weigh on our business operations. That being said, now that we are nine months into the pandemic, consumers are slowly adapting to the new normal, and the extent and magnitude of the pandemic shocks on consumer behavior has begun to fail. As restructuring improved our sales activities and consumer experience is offline, we have also expanded our online marketing efforts to reach a broader pool of potential consumers and intend to continue improve -- improving the online experience for potential clients. Albert Chen: Good morning, everyone. Thank you for joining our call today. In the second quarter, revenues decreased by 9% year-over-year to RMB286 million, as the decline in new subscribers resulted in a decrease in revenues from processing fees and other services. Various challenges were still in place during the reporting quarter. However, we managed to overcome these difficulties and remain on track to achieve our annual targets. In the second quarter, we recruited 17,643 new subscribers, representing a decrease of 18% year-over-year. Correspondingly, revenues generated from processing fees and other services decreased by 18% year-on-year to RMB164 million, which accounted for approximately 58% of total revenues, compared to 64% in the prior year period. By the end of September 2020, our accumulated subscriber base exceeded 867,000. Accordingly, storage fees revenues for the second quarter increased by over 7% year-over-year to RMB121 million. Gross profit in the second quarter decreased by 9% year-over-year to approximately RMB241 million. Gross margin decreased by 30-basis-point to approximately 84%, as raw material costs continue to add pressure to the margin despite our cost saving efforts. As we applied various measures to enhance cost efficiency and preserved our margins, operating income decreased by less than 4% year-over-year to RMB139 million and operating margin improved to almost 49% from 46% of last year. Operator: Thank you very much. Yes. We have the first question from Mr. `. The floor is yours, sir. Jeff Oliver: Hello. Thank you for taking my questions. I have several questions. The first is, can you share your new subscriber breakdown by region and payment options please? Albert Chen: For the second quarter of fiscal 2021, in terms of new subscriber breakdown, about 69% of new subscribers come -- came from the Guangdong regions, approximately 20% came from the Zhejiang regions and the remaining came from the Beijing regions. Jeff Oliver: Okay. Thank you. That’s very helpful. My second question is, how do you feel about the current margins? What levels do you believe they are sustainable? Albert Chen: This is actually a very good question. In order to cope with the current situations, on one hand we have some lingering effect from the recent pandemic, which to a certain extent affected our access to potential clients. And then and -- at the same time, we are looking at the market with falling number of births. So I guess, to maintain and -- our cost efficiency, while at the same time trying to control our costs in this troubled times, we have done a lot of -- we are put in a lot of extra cost measures in place. But with that being said, you notice that in terms of absolute amount, for example, our general and administrative expenses is now standing at around RMB43 million per quarter, as compared to, for example, in the first quarter of this year, which is only about RMB44.5 million and these are relatively low level and we are trying to keep it that way. And in terms of the sales and marketing expenses as we highlighted during the debriefing, it now only accounted for less than 20% of our revenue. This is probably one of the lowest level that we have seen in the past couple of years. Obviously, management is on an ongoing crusade to enhance the company operating efficiency and cost effectiveness. But I am -- but I think that if we -- if things gradually recovered and as we are starting to tune up our marketing and promotion activities as we start our hiring engine again, I will not be surprised to see that the SG&A start going back up again. So I guess, the current margin level, I think, the current cost structure is already at a relatively low level. We try to suppress as much as we can. But if we go and tune in up the activities going forward, I will not be surprised to see the cost will start to go back up again. I think this is probably the best way to answer your questions. Jeff Oliver: Okay. Understood. That’s helpful. Lastly, do you have any update regarding the One License per Region? Albert Chen: As many of you is aware, the One License per Region policy is expiring at the end of the current calendar year. We are keeping -- we are maintaining an ongoing dialogue with all the industry experts and business intelligence in hope to gain -- in hope to gauge a better understanding about with respect to the policy direction going forward. Operator: Okay. Thank you very much. Now we have next person Mr. Cyrille Pichot from Altimeo Asset Management. The floor is yours sir. Cyrille Pichot: Yeah. Thank you. Thank you for the question. So congrats on the results. I have a quite simple question. Is it a fair assumption to say that the Board of Director of a Global Cord Blood is waiting to get big clarity on all the regulation stuff in the cord blood banking industry before taking any decision regarding capital deployment, like potential dividend, potential share repurchase, potential acquisition. So because you are -- I mean you are doing very well. You are accumulating cash every quarter. You have at least US$900 million cash in your balance sheet. So of course, I think, that all your shareholders are waiting to see what you will do with all these cash. So can you just elaborate a little bit? Thank you. Albert Chen: Thank you for the questions. I think the capital deployment decisions, as I previously -- as I mentioned previously in other conference calls, has to be in line with the company and shareholders’ interests as a whole. But we have to take into account the future strategic development direction of the company as well and whether or not there are opportunities available. Obviously, the competitive landscape in China is subject to change depending on the policy outcome, depending on the revisions on the policies. So I think capital deployment would definitely need to take that into considerations. But I also mentioned in my other earnings call -- on my prior earnings call, I said, the company is looking for opportunity to diversify some of its operation of risk, such as, the single country risk or single market risk, I should say, and the single business risk. So single line up business mainly. So I think, whether or not we going to adopt other capital deployment decisions in the future beyond 2020. Really depends on what directions we are -- we will be choosing to head towards. Cyrille Pichot: Yes. But, I mean, just to clarify, can we expect that when you will get some clarity? I mean, we don’t know when, it’s -- maybe it’s going to be beginning of 2021, maybe it’s going to be mid-2021. We don’t know the date. But when you will get some clarity about future regulation? Can we expect as a shareholder that the Board will take some decision like acquisition, like doing some stuff and that is my question, but I guess the answer is, yes, probably, I hope so? Albert Chen: Thank you. Operator: Thank you very much. I think I m showing no question at this time. I would like to turn the call back to Ms. Cathy. Cathy Bai: Thank you, Chi, and thank you, everyone. This concludes our earnings conference call for the fiscal 2021 second quarter. Thank you all very much for your participation and support. Have a great day. Operator: Ladies and gentlemen, with that, we have come to the end of the conference call. Thank you for your participation and have a pleasant day ahead. You may now disconnect. Thank you.
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.
