Earnings Call Transcript - BNR Q1 2024

Operator, Operator

Good day and thank you for standing by. Welcome to Burning Rock’s 2024 First Quarter Earnings Conference Call. At this time all participants are in listen-only mode. Please be advised that this conference is being recorded. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, target, confident and similar statements. Statements that are not historical facts, including statements about Burning Rock's beliefs and expectations are forward-looking statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Burning Rock's control. Forward-looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those contained in any such statements. Burning Rock does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. And now I would now like to hand the conference over to our first speaker today, Mr. Han. Please go ahead.

Yusheng Han, CEO

Thank you. Welcome to Burning Rock's Q1 conference call. I'm the CEO and Founder of Burning Rock, Yusheng Han. Today, you also have our CFO Leo Li and our CTO Joe Zhang online. We'll go through our Q1 financial report. Let's turn to page three. There's a brief introduction of what Burning Rock is doing. We started from therapy selection in 2014 and then expanded to multiple areas, including early detection, MRD, and biopharma services. We have tried very hard over the past two years to improve our capability to be profitable, and we have made significant efforts. If we turn to page four, you will see what we accomplished in the past quarter. Basically, we are driving our sales efficiency to a better level, improving our gross margin, and this data will be shown later on. We have also reduced our G&A expenses and our R&D expenses to make the company more profitable. If we turn to page five, this page shows the financial results of different quarters over the past two years. In Q2 2023, we saw gross profit minus SG&A become positive for the first time. However, due to unexpected industry turbulence, we suffered in profitability in Q3 and Q4 of 2023. Now, things are returning to normal, and we are seeing a return to profitability in Q1 2024. This is a very positive sign for Burning Rock, and we will strive to continue increasing these numbers until the company achieves consistent positive cash flow in the future. Regarding the specifics of our path to profitability, I would like to turn it over to our CFO Leo Li to explain further. Leo?

Leo Li, CFO

Thank you, Yusheng. As Yusheng mentioned, we continue to make progress in the first quarter, and I'd like to elaborate on specific expense lines going forward. Let's go to page six. This is the most important item in our efforts to improve our operating efficiency. You can see for the latest quarter, we achieved sales and marketing expenses as a percentage of revenue at 35%. This is a historic low and represents the most efficient quarter in our recent operating history. We've made significant improvements since the middle of 2022, largely due to the hard work of my sales and marketing team. We are delivering on our goals, and this improving sales and marketing efficiency underpins our increasing operating profitability, which is the main factor behind this positive trend. Moving on to page seven, we previously discussed our gross profit margin, and while we have made progress, there are no material updates for this quarter. On page eight, we look at our general and administrative expenses. In our previous quarterly call, we discussed reducing headcount, office space, and overall fixed operating costs which have helped significantly drop our G&A expenses. We continue to expect further savings this year, with a significant decline in the first quarter compared to the same period last year. The factors we mentioned earlier continue to yield savings, and we will keep working on reducing our operating footprint. On page nine, we have our cash position. We ended the quarter with RMB573 million in cash balance. Compared to our cash outflow, we've dramatically reduced cash outflow from 2022 to 2023, and we anticipate making further progress in 2024. Our guidance for cash outflow is in the range of RMB150 million to RMB200 million for the year. We have several regulatory projects in the works for this year, and we expect additional savings in 2025. Our operating cash outflow should drop in 2025 as well, though we cannot provide specific quantitative guidance at this stage. I want to highlight our operating cash outflow against our cash balance on hand, as we have a solid three-year cash runway, allowing us to refrain from any rush on capital raising, providing us a favorable runway going forward. Page 10 talks about our P&L. Here, I'd like to comment on the revenue lines. We witnessed a change in our industry's operating environment starting last July. In that context, our transition away from central labs toward in-hospital services is accelerating. The first quarter this year marks the first instance where we're earning more revenue from in-hospital services than from central labs. Our in-hospital business is recovering, showing growth on both a year-over-year and sequential basis, marking it as the long-term growth driver for our revenue lines. We are continually entering new hospitals and deploying new products, and we expect to secure more hospital contracts going forward. This is the critical line for our clinical business. Overall revenue increased by 4% on a quarter-over-quarter basis, primarily driven by the in-hospital segment. That summarizes my comments on the financial section. If there are no further remarks or questions, we are happy to conclude the call.

Operator, Operator

Thank you. That concludes our conference for today. Thank you for participating, you may now all disconnect. Have a nice day.