Nov 27, 2014
Executives
Kevin Zhang - VP, Corporate Finance Tina Zheng - CEO Albert Chen - CFO Yuen Kam - Chairman
Analysts
Scott Henry - ROTH Capital Partners Brian Tanquilut - Jefferies & Company, Inc. Yi Chen - Aegis Capital Darren Wang - River Valley Asset Management Pte Ltd.
Operator
Welcome everyone to China Cord Blood Corporation's Earnings Conference Call for the Second Quarter and First Half of Fiscal 2015. All participants’ 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 Mr. Kevin Zhang, VP of Corporate Finance to begin the presentation.
Kevin Zhang
Thank you, Natalie. Good morning, everyone.
Welcome to our second quarter fiscal 2015 earnings conference call. A press release discussing our financial results has already been posted on our website and a copy is available.
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. Please refer to our SEC filings for detailed discussions of potential risks.
In the interest of time we will begin with our CEO's English remarks. After the discussion of our second quarter financial performance by our CFO, Albert Chen, our management will be available to answer questions during the Q&A session.
Let's begin our presentation.
Tina Zheng
Good morning, ladies and gentlemen. Welcome to our second quarter fiscal 2015 earnings conference call.
In the second quarter we signed up 15,584 new subscribers, which was a sequential increase from the first quarter of fiscal 2015. The majority of our new subscribers in the second quarter came from Guangdong, which is inconsistent with previous quarters.
Our total cumulative subscriber base has exceeded 400,000 for the first time and stood at 407,755 subscribers as of the end of September. We are pleased to experience another quarter of strong operating cash flow, as the one time upfront payment method remains the most popular payment option among our new subscribers.
As one of the world’s largest cord blood bank we continue to evaluate our market opportunities to ensure consistent long term growth. While we believe our overall opportunity remains soft [ph], our near term accessible markets in China are scattered geographically.
Given this condition we are revamping existing measures and exploring new initiatives to further enhance overall sales. In addition to enforcing our established sales channels we are attempting new means of advertisements.
We’re also reorganizing and increasing our top line sales force to optimize client recruitment. We’ve also modified our compensation scheme to provide further incentives for our top line workforce.
We believe these measures will enable us to achieve higher hospital coverage, increase our customer base and overall penetration rates. These actions over the long run are expected to strengthen CCBC’s industry leading position and overall competitive edge.
And we are beginning to experience early success as a result of the aforementioned initiatives. We maintain a healthy outlook for our business for the remainder of our fiscal year.
Based on our latest trends we expect fiscal 2015 new subscriber numbers to be in the range of 64,000 to 69,000. Our near term strategy is to increase our exposure and penetration in Guangdong market while prudently ramping up our operations in Zhejiang.
With the right team and the initiatives in place to continue expanding our operations and developing long term sustainable growth we remain excited about CCBC’s prospects. This concludes my remarks for the second quarter.
I want to thank you for your ongoing support of CCBC. At this point I’ll turn the call over to our Chief Financial Officer, Mr.
Albert Chen to review our second quarter financial performance in greater detail.
Albert Chen
Good morning, everyone. Thank you for joining our call today.
With the completion of our new Guangdong and Zhejiang facilities we are devoting more resources to explore and penetrate into new geographical and segmented markets and we’re also beginning to implement new advertising and promotional campaigns and redeploy some of our sales staff to build a new frontier for the company’s growth. We have managed to add 15,584 new subscribers in the second quarter of fiscal 2015, which represented a slight quarter-over-quarter improvement.
Total revenue in the second quarter was approximately RMB152 million, representing more than 7% year-over-year increase. Contribution of our revenue from storage fees continued to rise noticeably as our cumulative subscriber base expand to north of 407,000 by the end of second quarter of fiscal 2015.
In the current quarter revenue from storage fees increased significantly by more than 23% to RMB49.6 million, accounting for approximately 33% of our total revenue compared to about 28% in the prior year period. Year-over-year our revenue from processing fees increased modestly to approximately RMB102 million, due mainly to the pricing differentials between two quarters.
In terms of revenue mix, revenues from processing fees accounted for approximately 67% of our total revenue. Despite the increase in depreciation expense as a result of the completion of our new Guangdong and Zhejiang facilities our gross margin continued to be above 80% in the second quarter of fiscal 2015, helped by the increased contribution of our higher margin storage revenue.
Gross profit amounted to approximately RMB122 million, almost 7% increase year-over-year. In the second quarter our sales and marketing expenses edged up in line with our top line growth.
Sales and marketing expenses increased from RMB27.6 million in the prior year period to RMB31 million in the second quarter of fiscal 2015. As a percentage of revenue it remained in check residing in the 20% range.
Going forward we will continue to restructure and expand our sales team, step up our marketing campaigns and explore new marketing initiatives. In terms of our G&A expense it rose to approximately RMB31 million from RMB28 million last year.
This increase was mainly attributable to a higher depreciation expense and maintenance fee. As a percentage of revenue G&A expense increased modestly from 19.8% in the prior year period to 20.4% in the current quarter.
As we begin to utilize our new facilities we will continue to carefully monitor our fixed costs and execute our growth plans with cost efficiency. Taking into account increased depreciation expense, operating income for the second quarter increased modestly by approximately 2% year-over-year to RMB57.5 million as compared to RMB56.3 million of last year.
Depreciation and amortization expenses for the second quarter were RMB13.3 million compared to just RMB8.7 million in the prior year period. Operating income adding depreciation and amortization expenses or EBITDA showed almost 9% increase to RMB70.8 million.
Our operating margin and EBITDA margin were approximately 38% and 47% respectively. For non-operating items interest expense increased to RMB25.2 million in the second quarter from RMB16.5 million in the prior year period.
The increase was due to the absence of interest capitalization associated with the construction of our new facilities which are now completed. No interest was capitalized in the second quarter of fiscal 2015 compared to the capitalization of RMB6.8 million interest expense in the prior year period.
We expect interest expense which are largely tied to our outstanding convertible notes to remain at the current level in the coming quarters. Although our performance was affected by higher depreciation and interest expenses, net income attributable to the company’s shareholders increased by 9.4% to RMB27.2 million largely due to lower income tax expense.
Basic and diluted earnings per share were RMB0.35. Propelled by our execution of sales strategies that focus on high end customers, who favor the one-time upfront payment option, the company's cash generation continued to be robust.
Net operating cash flow grew by over 41% year-over-year to RMB171 million in the second quarter of fiscal 2015. These are the key highlights of our second quarter results and we are happy to take any questions concerning the results and the company's latest developments.
Thank you.
Operator
We will now begin the question-and-answer session. [Operator Instructions].
Your first question comes from the line of Scott Henry from ROTH Capital. Your line is open.
Please go ahead.
Scott Henry
Thank you and good morning. A couple questions, for starters I thought I heard the guidance at a range now of 64,000 to 69,000.
It seems like a pretty big span. Could you talk about what could make it in the higher end of that range versus the lower end of that range?
Albert Chen
Thank you for your questions, Scott. I think the new guidance that we put forth is reflecting two things.
On one hand with the uncertainty in the China macroeconomics front we are seeing some sort of a hesitation or which is kind of mildly affecting the consumer behavior. As far as we can see we don't see the impact to be enormous or extremely negative, which is the positive to us.
But at the same time we also realize that if we base on the conventional methods of marketing it seems like our growth will not be as fast as we anticipated. It is like operating in the same industry for a long time and doing same thing for an extensive amount of time sooner or later you are going to reach some sort of inflection point.
For those of you who actually followed our company long enough you understand in the past we relied a lot of marketing or a lot of our sales force to do our own marketing. We deployed our sales staff at the hospital level to interact with the clients one-to-one.
And to a certain extent the ability to attract new subscribers is related to the size of our cumulative subscriber base. The good thing is, I mean the bigger the base is, it’s more than easy or it becomes easier to attract new subscribers and it gains traction over time.
But at the same time is that you cannot -- your growth will also be related to how fast you are expanding your accumulated subscriber base. Now if we are to break through the current inflection points and go -- advance [ph] to the next stage of growth we need some new ideas.
So since August we’ve been deploying a series of new measures that we tried to experiment and explore, I mean as highlighted in the -- in our CEO remarks. Based on numbers that we’ve seen in October we see that our initiatives seems to come through and the results right now that we are seeing seems encouraging.
Now the initiatives which we’ve employed up to now involving for example adjusting our own sales force, how we deploy them, we are now reaching out to hospitals that we’ve never previously tackled. And also we are rebalancing our compensation schemes for our frontline sales people to actually incentivize them for upfront payment and at the same time we are expanding our mass media campaign.
In the past we’ve only focused in Beijing, now we are expanding into to Guangdong and Zhejiang as well. Not to mention that we are also looking into new marketing initiative, which involving I’ll say ads as well as electronic platforms.
We are hoping that through new channels we will build new interest into subscribing to the service and actually help us breach the, I’ll say the, understanding or the level of differences in terms of the appreciation towards the science behind it. So these are the things that we’ve been working on since August.
Two things I want to reiterate in this earning call is that first of all the original guidance that we provided we do not see a problem in meeting -- in reaching that numbers on an annual basis. The only issues that we are having right now is that we are only having -- we only have six months of period to catch up.
I don’t want consumer also -- I don’t want investor to get a wrong feeling that there has been something fundamentally changed at our company or at the businesses. Our business remains solid.
We’ve not generated as much cash flow as we are seeing this quarter. I mean my past nine years of China Cord, this is the highest quarterly cash flow I’ve seen.
So our business remained robust. Now it’s just about bringing in new ideas, revamping the sales force and so that we can breakthrough, punch through the inflection point and bring us to the next phase of growth.
Scott Henry
Okay.
Albert Chen
I remember Scott your part of your question is what happened to the range and why we give the range like that, okay. So assuming that none of our initiatives work out, so third and fourth quarter will probably be just like first and second quarter, which based on where I see right now is not likely to happen.
But should that be the case then we have pretty much a flat year in this transitional period. In that case then we’re probably looking at a range above 64,000, 65,000.
Now if the ramp up which we’ve seen in October continues then we can go as high as 69,000, which is part of the reason why we are giving this range at this time.
Scott Henry
Okay, great. Thank you.
That’s helpful. And the other questions I had, on the income statement, should we start to see leverage come into the model, start to see some improving margins and then finally, anything we should be factoring in on shares outstanding, whether there will be any management award grants or anything that would move that shares outstanding number?
Albert Chen
Thank you, Scott.
Scott Henry
Thank you.
Albert Chen
From the margin perspective the second quarter is pretty much reflecting a full scale depreciation as a result of the new facilities. As you can see gross margins as well as operating margins and especially EBITDA margin remained solid and with economy of scale, the benefit of economy of scale continue to kick in we do anticipate the margin should resume the improvement trend as we have seen prior to the capital expenditure projects.
So I think going forward we should continue to see gradual improvement across on the margin side. Now with respect to your questions concerning the outstanding shares or incentive share awards scheme, as you remember back in 2011, in the China Cord's annual shareholders' meeting the shareholders had adopted a, what we call a restricted share unit scheme and this is like an incentive shares for the management teams.
We are currently looking into utilizing those gains for potential issuance of incentive shares to the management team and of course management have to fulfill their performance target in order to earn those shares. So if that is going to happen we do believe that we are going to issue those incentive shares going forward maybe in December.
And I think the mandate if I am not mistaken I think the mandate is about 7.3 million shares.
Scott Henry
Okay. Great.
Thank you for taking the questions.
Albert Chen
Thank you Scott.
Operator
Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is open.
Please go ahead.
Brian Tanquilut
Hey, good evening Albert. First question for you is just housekeeping, if you don't mind giving us the subscriber breakdown between Beijing, Guangdong and Zhejiang.
Albert Chen
Thank you, Brian. In terms of new subscriber breakdown, approximately 36% of the new subscribers came from the Beijing market.
Approximately 55% of new subscribers came from the Guangdong market and I believe the Zhejiang market accounted for 9% of the new subscribers for the second quarter of fiscal 2015.
Brian Tanquilut
And then from a payment structure perspective, Albert do you mind sharing that with us as well, like upfront payment versus installment and all that stuff.
Albert Chen
In terms of normal payments it accounts for about for 35% of total new subscribers. New subscriber that choose upfront payment options they're approximately 52% and approximately 10% of clients choose to pay the whole contract value over a course of six years and the remaining are just other payment methodologies.
Brian Tanquilut
Okay got it. And then just turning back to the outlook that you mentioned, it's obviously very -- your cash flows have been very strong the last three quarters and we saw your strongest free cash flow quarter in the second quarter.
So I was just wondering is this something that you think is sustainable and is there anything in the second quarter that was extraneous or is this all operational cash flow that we saw?
Albert Chen
Now the second quarter we have reported about RMB171 million in terms of operating cash flows. A lot of it are related to our emphasis on upfront payment.
Now, but as you know, I mean since 2012 we have switched our emphasis on the quality of the clients, on brand building and so forth. Unfortunately those -- and this come with a trade-off, I mean the cash flow that we are generating is because of our emphasis on upfront payments, but to a certain extent by emphasizing on the upfront payment we lose certain customers who just don't have the affordability to pay upfront and will have normally have a tendency to choose normal payment if that option is available to them.
So to answer your question there is I think as long as we stay with our, I would say operational strategies, I see the cash flow for the company continue to remain strong and currently I don't see the need to actually go into a volume game purely for the sake of volume. I think we -- the initiatives that we have in place should be able to carry us forward and breach the inflection points.
Brian Tanquilut
Okay, that's a very good point. And then last question from me in terms of the ramp-up should we expect more contribution out of Zhejiang beginning in the third quarter?
Albert Chen
That's excellent questions, Brian. The way I look at that is that currently in Zhejiang we are still awaiting for the final green light from the local authorities to approve the facility.
So as we speak that facility has not been able to commence full scale operations and I sincerely hope that by the time we announce the third quarter results I don't have to answer that questions any more. But my feeling is that even though Zhejiang ramp up is kind of what we anticipated, its contribution to the full year result will only be merely between maybe January to March, should that be the case.
So while we remain positive towards the outlook of Zhejiang I think the ramp-up even if it's going to happen, is likely to happen in the next fiscal.
Brian Tanquilut
Got it. Thank you Albert.
Albert Chen
Thank you for the question.
Operator
Your next question comes from the line of Yi Chen from Aegis Capital. Your line is open.
Please go ahead.
Yi Chen
Hi. Thank you for taking my questions.
Just to clarify, the Guangdong, the new facility in Guangdong has been fully operational, is that correct?
Albert Chen
That is correct.
Yi Chen
Okay, and also, I don't know whether you have observed any new trends from the parents recently after the Chinese government’s policy that when both parents are single child of their respective families they can have a second child. Are those -- are that policy being implemented in the three regions you provide services?
Albert Chen
Thank you for the question, Yi. From -- in terms of the revision in the one child policy we do see -- well I mean, let me take a step back.
I mean when we recruit our clients we first approach them and introduce the service to them. So at that point we identify them as the potential clients and once they sign a contract they become the clients.
So I can tell you from real life experiences that from inquiry point of view and from client into action point of view, we are starting to see more and more people enquiring about our service because of their second child. Now, but based on the number I have seen in November I have not seen a significant ramp up in terms of new clients because they are giving -- because they are having the second child.
But I would suspect that based on the early indications suggest that the revision in the single child policy seems to be more positive than what we originally anticipated that we have not been able to actually quantify yet. I am hoping that by giving it another 45 days or maybe another end of the quarter than we have higher levels of transparency.
But I can tell you from a real life experience that the number of clients that approach us, that like we interact with, the portions -- proportion of people that are actually having their second child is higher as compared to six months ago.
Yi Chen
Okay. Thanks.
Second question is I think you mentioned your new marketing activity where it includes advertising through electronic platforms, including apps. So can you give us more color on that?
Albert Chen
Thank you. Thanks for your question Yi again.
The new initiatives involve basically two front, is a pull and a push approach. On one hand we have identified certain partners that we can work with and like us who already have, I will say a database or a membership that have information and contact information and current details with respect to people that already have newborn babies or people are thinking about having newborn babies.
So this is a very interesting pool that we can potentially tap into which we haven't done so in the past. This is more like a collaboration effort.
And on the other hand this is more like, I will say a reach and outreach, and at the same time though there are Internet giants in China where they have apps and electronic communication platform as well as e-commercial platforms and this is something that we believe can actually allow us to reach out deeper into a segment which we have previously no exposure into. So because the arrangement currently is still undergoing discussions and we are bound by a lot of confidentiality issues, so I am afraid this is as far as I can disclose.
Yi Chen
Final question, I think you mentioned you are now trying to marketing the services in hospitals, that you did not had any marketing activities before. So can you give us some color on how different are these hospitals compared to those hospitals that you have been providing services?
Albert Chen
To answer your questions I think Guangdong would be a good example because I think from a geographical space wise, I mean this province is the best as I can think of [ph]. In the past our marketing effort in the Guangdong province is primarily focusing on a handful of metropolitan area within the province, with a high concentration at the southern parts of the region.
As we try to break through the highs what we did is that we started rotating staff into hospitals that are slightly more remote that we have previously not tapped into because we think it's not economically justifiable, but now, I mean we have basically by readjusting that particular individual, or that particular team of those people compensation arrangement we are actually trying deploy them into hospitals that we have previously not tapped into. Now the hospitals are -- for those hospitals that are slightly more remote their generation or their penetration level initially were likely to be lower as the hospitals in the southern parts of the province.
But at the same time though, given the amount of resources that we're dedicating to these new hospitals has been huge. So as far as the numbers I've seen so far those new hospitals, I mean the amount of new clients that we'd be able to recruit seems somewhat promising as in early initiatives.
So I would not rule out the possibility that we may expand that, I’ll say, new marketing initiative even further.
Yi Chen
Okay. All right thank you.
Operator
Your next question comes from the line of Darren Wang from River Valley Asset management. Your line is open.
Please go ahead.
Darren Wang
Hi, good morning Albert, Ms. Zheng and Kevin.
Thank you for taking up my questions. My first question is regarding the processing and storage facilities in all our three provinces.
The question is what are the facility capacities in Beijing, Guangdong and Zhejiang after the new expansion and how much of the individual capacities has already been taken up? This is my first question, yeah.
Albert Chen
Thank you for the questions. And in terms of capacities, Beijing we have a capacity to house approximately 0.5 million samples.
So you’re looking at about 500,000 samples. In the case of Guangdong, combining both the new and old facilities together you are looking at, at least 850,000 designed capacity.
Now in terms of Zhejiang right now we looking about 400,000 in terms of capacities. Now in terms of capacity utilization front, in Beijing it will be about 40%, give or take, combining both the private fee paying clients and the donated samples.
In Guangdong, I think it's about 25%-27% and Zhejiang it’s still tiny range, probably almost like single digit 2%-3%.
Darren Wang
Okay thank you. And then after the new Zhejiang facilities started operating what is the guidance on the marketing cost moving forward, any guidance?
Albert Chen
Thank you for the questions. While the -- it’s part of my responsibility is trying to keep the cost in check.
So you noticed that right now the cost of marketing, our sales and marketing expenses is probably keep check at about 20% levels. Even though we are intending to actually step up, I mean our marketing campaign but we are carefully deploying the resources in a timely manner.
So to the best extent I can, or to the best extent we can we try to keep the cost for the remainder of the year in terms of sales and marketing no more than 21% of revenue. But in a worst case scenario you are looking at probably 21.5%.
This is for the current fiscal, but if you look into, for example, in the next fiscal year than I think a 22% maybe you can use as a guiding point or reference point.
Darren Wang
Thank you, Albert. That's very helpful.
My next question is about the depreciation. This quarter we have RMB13.3 million depreciation.
Does this number cover the full three months depreciation for the new facilities and I just want to double confirm that what is the starting point that started depreciating the new facilities? And moving forward are we expecting similar numbers as about RMB13 million to RMB14 million per quarter?
Albert Chen
Going forward we are expecting roughly about RMB13 million depreciation and amortization expenses per quarter and that's the right assumption. And we actually start depreciating our new facilities or new hardware starting in April of this year.
But some of the depreciation doesn't kick in until the equipment get installed and so forth. But looking at the RMB13 million this is pretty much a full scale three months depreciation expense and amortization expense.
Darren Wang
Okay that's helpful. And my third question is about the Zhejiang new facilities.
Counting Zhejiang new facilities unit [ph], how much do we expect their contributions for new subscribers solely from Zhejiang? In the bigger picture how do we expect the revenues, new subscribers figures in the next few quarters and in the year of Sheep?
Albert Chen
Okay, this is -- there are -- you actually involve couple of questions in your -- there are couple of questions in your questions. So anyway in terms of, from Zhejiang operational perspective, assuming that we have the laboratories infrastructure approved and we start using it we do anticipate the ramp up to be relatively significant or fast reaching pretty much similar to what we did back in 2007-2008 when we first launched the Guangdong operation without processing capacity bottleneck.
So that ramped up pretty fast. But from a timing perspective it takes us about six-seven years to get to the current stage.
So I'm hoping that will give you some kind of thoughts about how fast the ramp up is going to be. But from a size perspective it will be rather hard to imagine for example all of a sudden Zhejiang become, I'll say like 30% 40% of our new subscriber compositions in the next year, even though ramp up is fast I don't think that will be the right assumption.
Sorry, I forgot what your other question is?
Operator
Your next question comes from the line of EV Chen [ph] from [indiscernible] Capital. Your line is open.
Please go ahead.
Unidentified Analyst
Yeah, hi Albert, thanks for the call today and appreciate you for taking the questions. Yeah we’ve heard a lot about the inflection this quarter and possibly this year.
So just wanted to hear your thoughts around what do you think are the top two or three growth initiatives that management has? And at the same time if you were to rank them what are the top maybe two or three growth bottlenecks that are you are seeing that's causing the inflection?
That's my first question.
Albert Chen
I think that -- and I’ll try to answer your question to the best extent I can. I think from the inflection point perspective, one thing is that the accumulative subscriber base is growing in a steady mode.
But it’s also at the same time, how fast we can grow our new subscribers is to a certain extent is a derivative of how big our accumulative subscriber base is. If we are to rely on our conventional way of marketing which to a certain extent we really effect it by client referrals.
For example like your friends have done it, then you are more than likely to do it kind of scenario. So growth will continue but you just can't grow as fast as you want.
So which is part of the reason why we want to break through the ice and try something new, tap into a -- using a different more economical channels to tap into a new group of customers which we had previously, have no easy access to. I think that's probably the best way to put it.
In terms of the challenges, I think those of you who actually follow our company for a long time understand that we have suffered a couple of delays in terms of the Zhejiang facility build out and that's not only disappointing us but I think that's also hindering our growth. So one of our top priority is actually get it out of the way and hopefully we can probably ramp up the Zhejiang I’ll say market penetrations.
Unidentified Analyst
I see. And just to confirm, you mentioned that probably that's going to happen by next fiscal right, that this probably, the next two quarters it’s not likely for Zhejiang…?
Albert Chen
I'm hoping that the processing capacity bottleneck issue will no longer be an issue by the time we report the third quarter results. However I continue to remain hopeful on that front.
But with that being said I don't think the ramp up in Zhejiang will be significant enough to actually provide an extreme positive surprises for the remaining of the fiscal year given the fact that its full blown potential can only realize in the last quarter of the current fiscal year, so there is not enough time.
Unidentified Analyst
But you think that -- in the last call -- and just to confirm what you meant by that, so you mean that in Q4 or by Q4 you expect to get all the paperwork and licenses you need to run Zhejiang normally.
Albert Chen
That is correct, as soon as possible. Hopefully before the end of Q3, I’m still remaining hopeful.
Unidentified Analyst
I see. Okay, that's very helpful.
Do you have time for one or two more questions?
Albert Chen
Yeah.
Unidentified Analyst
Sure, okay, yeah thank you for taking the question. So actually two more questions.
So one of my questions is that if you look at your income statement there is a pretty high interest expense related to the KKR convertible note, is that correct?
Albert Chen
That is correct. Actually the interest expense, I'll say simple majority, not more than 90% of it related to the convertible note coupon and the accrued interest expenses; both the KKR convertible notes as well as the convertible note which currently changed hand and owned by our Chairman as well as our sister company, Cordlife Group Limited.
Unidentified Analyst
I see. That's what I meant.
So actually that's also interesting question, but maybe I can talk to you offline about it, but my question today is pretty expensive cash we have sitting on the balance sheet and we have a lot of it, what are our plans, what are the management plans for the cash?
Albert Chen
Well I mean the capital deployment on our case is probably from the operation perspective about two fold. Ongoing operation is probably for the benefit of -- to convey inorganic growth, we’ll probably deploy capital for potential M&A purposes which we have previously talked about.
And from a capital market perspective that we have continuously doing a share repurchase program and if there is no, I will say imminent use of capital, I think we have an excessive amount of capital on hand and we will have to find a way to reward shareholder either through means of share repurchase or dividend. That is something that's constantly on our mind.
Unidentified Analyst
Yes. So if you were to rank, what are management thoughts about it, what would be the top use of cash?
You mentioned two or three, right, I mean you said M&A is one, dividends, repurchases, those things. Secondly, if you were to rank them how would management think about use of cash?
Albert Chen
I think at the end of the day it also boils down to the rationale behind each actions and the relative valuations implied by such actions. If the valuation of the company all of a sudden become ridiculously depressed then I think most of the investor or shareholders will agree with me we go for let’s say a share repurchase programs.
If the valuation of the acquisition target all of a sudden become more approachable than maybe the usage of capitals is and deployed those capitals for M&A purposes is something that will make a lot of sense because it guarantees the long-term growth for the company. So I guess it depends on situations.
Unidentified Analyst
I see. That's great.
That's a great talk. Sir, the last one question I have really quickly is that, do you have an update on the one region one license kind of policy coming up, do you have any update on that?
Albert Chen
Well I mean we've maintained our constant interactions with the ministry but unfortunately there is currently no indication as to that, there is no indication that will lead us to believe that will be, let's just say I don't think there is enough information, there is no evidence, sufficient enough for us to conclude whether there is going to be, significant changes or there is going to be any changes with respect to policy. They keep their lips tight right now.
Unidentified Analyst
I see. Can you remind us again when are the expected changes to be announced?
I mean, I think they gave, when they first announced the policies many years ago they said something about but can you remind us, is there a time when we are expecting some sort of announcements on that?
Albert Chen
Actually the original policy was one license per region, no more than 10 licenses by the end of 2010 and then at the end of 2010 there were only six licenses. So they extend the policy in 2015 which is the end of next year, and right now there are only seven licenses.
Unidentified Analyst
So basically by the end, by December 2015 we are expecting to hear some sort of things from the government now, will that be possible.
Albert Chen
It's possible. Or maybe in early 2016 because last time I think they did in 2011, early 2011.
Unidentified Analyst
I see. Okay, and then that’s no -- I mean I'm sure management constantly interacts with the relevant authority and what I'm hearing right now is that's nothing to conclude one way or another, there’s basically no information, that's what I'm hearing.
Albert Chen
That's a fair conclusion.
Unidentified Analyst
I see, okay. Okay good, but thank you very much for your questions.
Albert Chen
Thank you for your questions.
Operator
Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is open.
Please go ahead.
Brian Tanquilut
Yeah, Albert just a follow-up question. We talked a lot about volumes in your outlook.
Just wanted to hear your thoughts and what gives you confidence in the revised guidance that you gave. And based on what you're seeing maybe right now in terms of current trends and also just your thoughts on without going into guidance, just where you think the volume growth could go once Zhejiang is fully rolled out and once your marketing plans and sales strategies are in place.
Albert Chen
Well, right now I mean the -- part of the reason why as I mentioned early on that we gave a range on the guidance, why we tried to be transparent with the market, we understand the market don't like surprises. So we basically put out two scenarios.
One is the absolute worst case where none of the initiatives have worked out and then other is, the other scenarios is where the I will say the momentum in new subscriber recruitment continued and then we can hit that 69,000 is probably the highest that we can go, with the amount time remaining in this fiscal year. At least based on the October number and the numbers that we've seen in early November I think we are progressing in the right track.
So I'm sincerely hoping that we won't end up in a flattish scenario which is the low end. In the -- on the full year basis, as I mentioned early on, I think we -- if the initiatives and the expansion in Zhejiang are working out.
I don't think the 70,000 is an issue. I don't think the new subscriber number is a concern.
I mean growth momentum as well as the market dynamics remain intact. There are people who want the services and it’s just about how we want to reach them in an economical manner and how fast we can reach out to them.
Now in the -- I want to also reiterate one point is that, there is the fundamental of the company hasn't changed, the business dynamic hasn't changed. And we are now ramping up sales people and getting rid of some of the, I would say, non-performer and also we are recruiting new sales staff on, in my standard, I see them as more aggressive characters and I think they will fit well in the current culture.
So let’s just say that I remain hopeful that our numbers will be strong.
Brian Tanquilut
And then Albert just to follow up to a point you made earlier, I mean how is the management team thinking about balancing between pursuing cash flows and pursuing volumes, and what are the risk factors that you consider when you make that decision?
Albert Chen
Well right now we are basically putting, setting -- branding ourselves as the premium service provider, both in terms of pricing as well as the quality of service that we provide. I mean I need not to mention that we are currently the only licensed bank in China with the AABB accreditation.
And then I think the fact that the market has remained -- we remain positive towards the outlook for the market. I just don't see the point of sacrificing cash flows in return for a faster growth.
It's actually not about the risk as well, because from a financial standpoint if we have more clients signing up it actually carries a higher present value as compared to people just go with the normal payment options. You also noticed that in my -- the way I answer the questions early on, I breakdown the new payment methods and one of the payment methods which I highlighted is what we call a six years payment program, which allow the individuals to pay out or pay off the entire contract sum by fixed installment over a course of six years.
And that also carries a higher present value as well. So I think it's not more about the risk but it's about running the business in an appropriate way and at the same time balancing affordability the public awareness versus our market positioning.
Brian Tanquilut
Got it. All right, thank you Albert.
Albert Chen
Thank you for the question Brian.
Operator
At this point there appears to be no further questions. I will now turn the call back to Mr.
Kevin Zhang.
Kevin Zhang
Thank you. This concludes our earnings conference call for the second quarter of fiscal 2015.
Thank you for your participation and ongoing support. Have a great day.
Operator you may now disconnect.
Operator
That concludes the conference for today. Thank you for participating and you may all disconnect.