Global Cord Blood Corporation (NYSE:CO) Q2 2020 Earnings Conference Call - Final Transcript

Nov 27, 2019 • 08:00 am ET

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Global Cord Blood Corporation (NYSE:CO) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
ZHENG Ting, Tina

operating markets and are ready to adjust our overall strategy and market positioning based on any potential changes. Bearing all these in mind, we remain committed to our fiscal 2020 new subscriber target, which is between 80,000 and 85,000.

This concludes my remarks regarding our fiscal 2020 second quarter results. Thank you for your ongoing support of Global Cord Blood Corporation.

I will now turn the call over to our CFO, Mr. Albert Chen, to go over our second fiscal quarter financial performance.

Executive
CHEN Bing Chuen, Albert

Good morning everyone. In the second quarter, revenues increased by 27% year-over-year to RMB314 million. Similar to last quarter, the increase was mainly driven by the upward adjustment in processing fees from RMB6,800 to RMB9,800, which became effective in April, 2019. In addition, storage revenues increased as a result of the Company's enlarged subscriber base.

In the reporting quarter, driven by concerns over slower economic growth as well as the on-going US-China trade tensions, consumer sentiment in our markets remained conservative. At the same time, our target segment was adjusting to the new pricing. Despite such conditions, we managed to recruit 21,551 new subscribers, in line with management expectations, at only a 6.6% year-over-year -- only at a 6% year-over-year decrease. With a boosting effect from the new processing fee, revenues generated from processing fees and other services increased by 32% year-over-year to RMB201 million. This represents approximately 64% of total revenues compared to 61% last year.

By the end of September 2019, our accumulated subscriber base had exceeded 791,000. Accordingly, storage revenues for this quarter increased by approximately 18% year-over-year to RMB113 million. Gross profit in this quarter increased by 33% year-over-year to nearly RMB265 million. Gross margin improved to 85%, as the increase in the processing fee exceeded the increase in labor related costs. Benefiting from the new pricing, operating income increased by 38% year-over-year to RMB144 million and operating margin increased to 46%. Depreciation and amortization expenses were approximately RMB13 million, similar to last year. Despite the increase in operating expenses, non-GAAP operating income still increased by 33% year-over-year to RMB157 million. Non-GAAP operating margin increased to 50%.

In the face of cautious consumer sentiment in the second quarter, we continued to expand our sales team and scaled up our marketing and promotion activities. Therefore, sales and marketing expenses increased by 26% year-over-year, or 7% quarter-over-quarter, to RMB65 million. Sales and marketing expenses as a percentage of revenues was 21%, same as last year and down from 22% of last quarter. General and administrative expenses amounted to RMB49 million compared to RMB40 million last year. The increase was mainly attributable to the increase in staff costs, bad debt provision, and legal and professional fees. That said, general and administrative expenses as a percentage of revenues decreased to less than 16%.

In the second quarter, we recognized a RMB7 million decrease in fair value of equity securities, or commonly known as mark-to-market loss. This was significantly less than the RMB31 million which was recorded last