Q1 2024 Burning Rock Biotech Limited Earnings Call

Okay.

Operator: Good day, and thank you for standing by. Welcome to the Burning Rocks 2024 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Please be advised that this conference has been 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 US Private Securities Litigation Reform Act of 1995.

Operator: These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intents, plan, beliefs, estimates, targets, confidence, 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 markets and operating conditions and relate to events that involve known and unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond Burning Rock's control.

Speaker Change: Good day, and thank you for standing by welcome to the bedding rocks 'twenty 'twenty four first quarter earnings conference call. At this time, all participants are in listen only mode.

Speaker Change: Today's 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 21 E of the Securities Exchange Act of 19th at your fault as amended and as defined in the U S. Private Securities Litigation Reform Act of 1995.

Speaker Change: These forward looking statements can be identified by terminology, such as will expects anticipates future intends plans.

Speaker Change: Estimates targets confident and similar statements.

Speaker Change: Statements that are not historical facts, including statements about button rocks beliefs and expectations are forward looking statements.

Speaker Change: Such statements are based upon management's current expectations and current market and operating conditions and relates to events that involve known and unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond that and rocks controlled.

Speaker Change: Forward looking statements involve risks uncertainties and other factors that could cause actual results to differ materially from those contained in any such statements.

Speaker Change: They didn't Robert 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.

Operator: Forward-looking statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in any such statement. 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 and applicable law.

Speaker Change: And now I would now like to hand, the conference over to your first speaker today. Mr. Han. Please go ahead.

Yusheng Han: Thank you.

Yusheng Han: Thank you. Welcome to Burning Rock's Q1 conference call. And I'm the CEO and founder of Burning Rock, Yusheng Han. And today, you also have our CFO, Leo Li, and our CTO, Zhou Zhang, online. So today, we'll go through our Q1 financial report. Let's turn to page three. There's a brief introduction to what Burning Rock is doing.

Yusheng Han: Welcome to burning rocks.

Yusheng Han: One conference call.

Yusheng Han: We started with therapy selection in 2014 and then expanded to multiple areas, including early detection, MRD, and biofarmers service. So, we know that in the past two years, we have tried very hard to improve our capability to be profitable, and we have made a lot of efforts. So, if we turn to page four, that is what we have done in the past one quarter. Basically, we are driving our sales efficiency to a better level, and we are improving our gross margin, and there will be data showing this later on. And then we reduced our G&A expenses to a better level, and also reduced the R&D expenses so that the whole company becomes more profitable. Let's turn to page five.

Speaker Change: And so I'm, the CEO and founder of burning rock Shanghai and today, you will also have our Seattle, they already and our CTO, Joe or Tom online. So today, we'll go through our.

Yusheng Han: That's the result, the financial result of different quarters in the past two years. We have seen that in Q2 2023, it was the first time that we got the results of gross profit minus SG&A to be positive. And because of all the known and expected industry turbulence in Q3 and Q4 of 2023, we suffered from profitability. But now things are getting to normal, and we have seen that in Q1 2024, we'll return to profitability again.

Speaker Change: Q1 financial report.

Speaker Change: Let's turn to page three.

Yusheng Han: And that's a very good sign for Burning Rock. And we will try our best to make the number bigger and bigger until the whole company's cash flow is possible in a day. And in terms of the details of what we have done to make the company profitable, I will turn to our CFO, Leo Li, to explain that. Thank you, Richard.

Are there some brief introduction about what we're going to work.

Speaker Change: It's doing well.

Speaker Change: We started from a therapy selection in 2020 throughout 2014.

Marty: And and then expand it out to multiple areas, including already detection I'm, Marty and Biopharma services.

Marty: So in and we know that in our past.

Two years, we tried very hard to improve our capability.

Marty: And to be profitable and so we have made a lot of efforts and so if we turn to page four let us all what we have done in the past one one quarter.

Marty: Basically we are driving our sales efficiency to a better level and we are improving our gross margin and there will be data show later on and then we reduced our G&A expense.

Marty: Sensors.

Speaker Change: Two a barrel.

Speaker Change: Better level and also the R&D radios the R&D expense.

Speaker Change: To make the all.

Speaker Change: Or the company.

Speaker Change: You're getting more profitable.

Speaker Change: Profitable.

Speaker Change: Now, let's turn to page five.

Speaker Change: That's a that's the result, the financial result.

Speaker Change: Keep on quarters.

Speaker Change: Past two years, we have seen that in Q2 2023.

Speaker Change: It was the first time that we are we get the results out.

Speaker Change: Cost of course, probably the miners at seem to be positive.

Speaker Change: And because of the.

Speaker Change: All known and respected industry turbulence.

Speaker Change: So in Q Q3, and Q4 in 2023.

Speaker Change: We suffer from a from the appropriate activity.

Speaker Change: That's all now things like getting to normal and we have seen that in.

Speaker Change: In Q1, 'twenty 'twenty 'twenty four we're getting a return to a profitable again.

Speaker Change: That's a very good sign for burning rock.

Speaker Change: We will watch how fast to make the number a bigger and bigger until the whole company.

Speaker Change: Cash flow.

Speaker Change: Hospital.

Speaker Change: Sure.

Speaker Change: And in terms of that.

Speaker Change: The detail after Huawei, while we have done to make the company.

Speaker Change: Profitable.

Speaker Change: I will turn to our CFO.

Speaker Change: Really to explain that.

Jinxiang Li: Thank you, Yusheng. So, as Yusheng mentioned, we continue to make progress in the first quarter, and I'd like to elaborate on our specific expense lines going forward. So let's go to page six. This is the most important item in driving our operating efficiency. You can see that in the latest quarter, we achieved sales and marketing expenses as a percentage of revenue at 35%. That is a historic low or the most efficient quarter in our recent operating history.

Speaker Change: No.

Speaker Change: Thank you we should.

Speaker Change: Michelle mentioned, we continued to make progress in the first quarter and I'd like to elaborate on specific expenses lines going forward. So let's go to page six this is the most important item in Australia. Our operating efficiency you can see that the latest quarter, we achieved sales and marketing expenses as a percentage of.

Speaker Change: Revenue at 35% that is a historic low or what the most efficient quarter in our recent operating history, you can see that we've come a long way in the middle of 2022.

Jinxiang Li: You can see that we've come a long way in the middle of 2022, and that is driven by a lot of hard work from our sales and marketing team. So we are delivering on this result. And this improving sales and marketing efficiency is what underpins our improving operating profitability. That is the most important factor behind the trend.

Speaker Change: And that is driven by a lot of the heart walk from a sales and marketing teams. So we are delivering on the risk result, and this improving sales and marketing efficiency.

Speaker Change: Is what underpins our improving operating profitability that is the most important factor behind the trend.

Jinxiang Li: Then going forward, on page seven, we talked about our gross profit margin in our previous hall. We continue to make progress, and there is no material update on this matter in this quarter. Then, on page eight, we looked at our general and admin expenses. In our previous quarterly call, we talked about the reduction of headcount, the reduction of office space, and other fixed operating footprint that we have carried out that reduces our G&A expenses.

Speaker Change: Then going forward on page seven where talks about our gross profit margin in our previous call.

Speaker Change: We continue to make progress and there is no material updates on this matter.

In this quarter.

Speaker Change: Then going to page eight looking at our general and admin expenses in our previous quarterly call. We talked about a reduction of head count reduction of office space and other.

Speaker Change: <unk> operating footprint that we have carried out that drops that reduces our G&A expenses.

Jinxiang Li: We mentioned that we continue to expect further savings into this year. So, you can see that in the first quarter, we achieved a significant drop this quarter compared to the same period last year. So the factors that we mentioned before, they continue to give us additional savings, and we'll keep working hard at reducing our operating footprint. We'd also like to make comments on our cash position, which is shown on page 9. We ended the quarter with a 573 million RMB cash balance.

Speaker Change: He mentioned that we continue to expect further savings into this year. So you can see that in the first quarter. We have achieved a significant drop in this quarter compared to the same period last year. So the factors that we mentioned.

Speaker Change: Before they continue to give us additional savings that we will keep working hard at reducing our operating footprint.

Speaker Change: We like to also make comments on our cash position, which is shown on page nine.

Speaker Change: We ended the quarter with 573 million RMB cash balance and if you contrast that with our cash outflow. So we have reduced our cash outflow significantly from 2022 to 2023, we expect to make further progress in 2024.

Jinxiang Li: And if you contrast that with our cash outflow, we have reduced our cash outflow significantly from 2022 to 2023. We expect to make further progress in 2024. Our guidance is for a cash outflow in the range of 150 to 200 million RMB for the year of 2024. We still have a couple regulatory and important projects going on this year. So we expect additional savings into 2025. Hence we expect our opening cash outflow to drop further in the year 2025. Although at this stage, we are not at a point to give specific quantitative guidance, so I wanna benchmark that operating cash outflow against the cash balance that we have on hand.

Speaker Change: Our guidance is for a cash outflow in a range of 150 to 200 million RMB for the year of 2024, we still have a couple.

Speaker Change: Regulatory and important projects going on for this year. So we expect additional savings into 2025. So we expect our operating cash outflow to drop further in the year 2025 will go at this stage, we're not at a point to give specific quantitative guidance. So I wanted to benchmark that.

Speaker Change: Operating cash outflow against the cash balance that we have on hand, if we see a good three years of cash runway. So we should be in no rush to do any capital raising so.

Jinxiang Li: We see a good three years of cash runway, so we should not be in any rush to do any capital raising. We have the initiative on ourselves, and that provides us with a good runway going forward. Page 10 talks about our P&L, and here, I have some comments on the revenue lines. So we had a change in our industry's operating environment, and that was well reported by the press, starting in July last year.

Speaker Change: So we have the initiatives on ourselves.

Speaker Change: That provides us a good runway going forward.

Speaker Change: Page 10 talks about our P&L and here I have some comments on the revenue line. So we.

Speaker Change: We had a change in our industries operating environment now as well are reported by the press.

Speaker Change: Which started in July of last year.

Jinxiang Li: Within that context, you can see that we are accelerating our transition away from the central lab and more towards in-hospital. So we are getting more share of revenue from in-hospital. And the first quarter of this year marks the first quarter where we're getting more revenues from in-hospital than from central lab. So I think we are continuing to make progress in that transition. You can see in the first quarter we have recovered the in-hospital business, and it is growing on a year-over-year and sequential basis.

Speaker Change: Within that context, you can see that we are accelerating our transition away from central lab and more towards being hospital.

Speaker Change: So we are getting more share of revenue from in hospital and first quarter. This year marks the first quarter, where we're getting more revenues from in hospital from Central App.

Speaker Change: We are.

Speaker Change: To make progress in that in that transition.

Speaker Change: You can see in the first quarter, we have recovered the in hospital business. It is growing on a year over year and sequential basis and that is going to be a long term share growth driver.

Jinxiang Li: And that is going to be the long-term share growth driver for our revenue lines. We continue to get into new hospitals, and deploy new products, and we expect to win more hospitals going forward. So this is the most important line for our clinical business. So overall revenue is up 4% on a quarter over quarter basis, and that's mostly driven by the in-hospital line. So those are the additional comments we'd like to add here.

Speaker Change: For.

Speaker Change: For our for our revenue lines, we continue to get into new hospitals.

Speaker Change: Deploying new products.

Speaker Change: Thats going more hospitals going forward. So this is the most important.

Speaker Change: Flying for our clinical business.

Speaker Change: So the overall revenue.

Speaker Change: Is.

Speaker Change: Up 4% on a quarter over quarter basis, and Thats, mostly driven by the in hospital lines. So that is that is the additional comments we'd.

Jinxiang Li: On the operating expenses, we've talked about them before, and we'd like to recap here that if you look at the non-GAAP gross profit and minus sales, GNA expenses, we are at a positive commercial break-even point in the first quarter. In a previous results call, we said that our guidance was to achieve this objective in the first half of 2024, and we are very pleased that we hit that goal in the first quarter.

We'd like to add here on the operating expenses, we've talked about them before.

Speaker Change: And we'd like to recap here that if you look at.

Speaker Change: The non-GAAP gross profit.

Speaker Change: And minor sales G&A expenses, we are at a positive commercial.

Speaker Change: Breakeven points in first quarter.

Speaker Change: Our previous results call, we said that our guidance was to achieve this objective in the first half of 2024 and we are very pleased that we hit that goal in the first quarter.

Jinxiang Li: Our latest guidance is to achieve positive non-GAAP gross profit minus GNA for the whole year of 2024. So that is what we're working on for the year of 2024 to show that at the operating level, our businesses are profitable. Then we have a few R&D items that we're going to work through, and we're gonna work towards positive break-even for the whole company going forward. So that concludes the remarks for our financial section. And Operator, if there are no further remarks or questions, then we're happy to conclude the call.

Speaker Change: Our latest guidance is to achieve positive non-GAAP gross profit minus SG&A for the whole year of 2024, so that is.

Speaker Change: What we're working on for the year of 2020 forward to show that on the operating level. Our business are profitable that we have a few R&D items that we're going to walk through.

Speaker Change: And we're going to work towards positive breakeven for the whole company going forward.

So that concludes the remarks full our financial section.

Speaker Change: And operator, if there are no further remarks or questions and we're happy to conclude the call.

Operator: Thank you. That does conclude our conference for today. Thank you for participating in Mana or Disconnect. Have a nice day.

Speaker Change: Thank you that does conclude our conference for today. Thank you for participating you may now disconnect have a nice day.

Speaker Change: Bye bye.

Speaker Change: Okay.

Speaker Change: Yeah.

Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].