China Cord Blood Corporation (NYSE:CO) Q4 2019 Earnings Conference Call - Final Transcript

Jun 19, 2019 • 08:00 am ET

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China Cord Blood Corporation (NYSE:CO) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Kathy Bian

April 1st, 2019. The adjustment reflects our ongoing efforts to improve our service quality and client experience.

It also absorbs some of the costs associated with Cord Blood Processing. By increasing single client contribution and providing a buffer to counter the impact from the current demographic trends we just described, we believe such a measure will allow us to maintain our top line and margin levels. Taken together, we expect that the number of new subscribers for fiscal 2020 will range between 80,000 and 85,000.

Meanwhile, in order to expand our geographic coverage and revenue sources, we will continue to screen for business development opportunities inside and outside of the PRC that could offer synergies to our current services. Thank you all, again, for your support of GCBC.

I will now turn the call over to our CFO Mr. Albert Chen to review our fourth quarter financial performance in greater detail.

Executive
Albert Chen

Good morning everyone. In the fourth quarter, revenues increased by 8% year-over-year to RMB252 million. As our accumulated subscriber base increased to more than 75,0000 as of March 31st,2019, fourth quarter storage revenue increased by 20% year-over-year to RMB103 million, and storage revenue now accounted for 41% of total revenues, up from 37% in the same period of last year.

In the fourth quarter, we recruited 22,194 new subscribers and processing revenue increased to RMB149 million, up from RMB147 million of last year. Similar to prior quarters, the majority of the new subscribers came from our Guangdong division. In line with our top line growth, fourth quarter gross profit increased by 8% year-over-year to RMB204 million. Increased contribution from storage revenue helped to improve gross margin. But this was partially offset by an increase in raw material and labor costs. Consequently, gross margin edges up by 20 basis points and maintained at the 81% range in the reporting quarter.

Operating income in the reporting quarter increased significantly to RMB89 million, up from RMB42 million in last year period, despite higher sales and marketing expenses. This was mainly due to the absence of share-based compensation expenses related to the Company RSU schemes, as all of the RSUs were fully vested in last year period.

Share based compensation expenses for the last year period were RMB48 million. Depreciation and amortization expenses in the reporting quarter were RMB13 million. Fourth quarter operating income before depreciation, amortization and share-based compensation expenses or we commonly refer to as the non-GAAP operating income, amounted to RMB102 million compared to RMB103 million of last year.

Non-GAAP operating income margin was 41% compared to 44% of last year. In the fourth quarter, sales and marketing expenses increased by 13% year-over-year and 4% quarter-over-quarter to RMB67 million. This was mainly attributable to an increase in staff remuneration expenses and escalated marketing and promotional activities. Sales and marketing expenses, as a percentage of revenues, increased to nearly 27%.

In the context that the number of newborns gradually declined in our addressable markets, we remain focused on advocating existing and