Yansheng Han; Chairman of the Board, Chief Executive Officer, Founder; Burning Rock Biotech Ltd
Jinxiang Leo Li; Chief Financial Officer, Director; Burning Rock Biotech Ltd
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Burning Rock's 2024 first-quarter earnings conference call. (Operator Instructions) Please be advised that 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 21E. of the Securities Exchange Act of 1934 as amended and as defined in the US Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, beliefs, estimates, targets, or 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 market 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. These 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 your first speaker today. Mr. Han, please go ahead.
Yansheng Han
Thank you, and welcome to Burning Rock's Q1 conference call and so on. I'm the CEO and Founder of Burning Rock vision [Hahn]. And today, you also have our CFO, Leo Li and our CTO, Joe Zhang online. So today, we'll go through our Q1 financial report, Let's turn to page 3, Are there a brief introduction of what Burning Rock is doing? We started from therapy selection in [20 off] in 2014 and then expand that to multiple areas, including early detection, MRD, empower farmers out of services. So our in and we know that our in our past two years, we tried very hard to improve all of our capability [of files, our aim] to be profitable. And so we have made a lot of efforts. So if we turn to page 4 data, so what we have done in the past well, 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 I show later on and then we reduced our G&A expense expenses and to a better level and also the R&D reduced the R&D expense so that to make the old audit company to getting more profitable. And let's turn to page 5, our [desk, a] test result, the financial results of different quarters in the past two years. We have seen that in Q2 2023, it was the first time that we will get the results of our cost of gross profit minus SG&A to be positive. And because of the of all known and expected industry turbulence actually in Q3 and Q4 in 2023, we suffer from the of profitability that now seems like getting to normal. And you would have seen that in Q1 2024, We'll get our return to profitable again and that as a very good sign of Burning Rock in outlet, we will do our best to make that number bigger and bigger until the whole company, our cash flow, the possibility in the future. And in terms of the detail of the what we have done to make the company a profitable. I will turn to our CFO, Leo Li, to explain that.
Jinxiang Leo Li
Thank you, Yansheng. So I wish I mentioned we continue to make progress in the first quarter and I'd like to elaborate on specific expense lines going forward. So let's go to page 6. This is the most important item in us driving our operating efficiency. You can see that 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. You can see that we've come a long way in the middle of 2022, and that is driven by a lot of the hard work from our sales and marketing team. So we are delivering on the 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. Then going forward, on page 7, we talked about our gross profit margin in our previous call. We continue to make progress and there is no material update on this matter in this quarter. Then going to page 8, looking at our general and admin expenses. In our previous quarterly call, we talked about a reduction of headcount reduction of office space and other fixed operating footprint that we have carried out that drops that reduces our G&A expenses. We 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 before, they continue to give us additional savings and we will keep working hard at reducing our operating footprint. I would like to also make comments on our cash position, which is shown on page 9 we ended the quarter with RMB573 million, a cash balance. And if you contrast that with our cash outflow, so we have reduced our cash outflow significantly from 2020 to 2023, we expect to make further progress in 2024. Our guidance is for an cash outflow in a range of RMB150 million to RMB200 million for the year of 2024. We still have a couple of regulatory and important projects going off for this year. So we expect additional savings into 2025. So we expect our operating 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 want to benchmark that operating cash outflow against the cash balance that we have on hand. We see a good three years of cash runway. So we should be in no rush to do any capital raising. So we have the initiative on ourselves and that provides us a good runway going forward. Page 10 talks about our P&L and here I have some comments on the revenue line. So we had a change in our industries operating environment, and that was well reported by the press, which started in July last year. And within that context, you can see that we are accelerating our transition away from central lab and more towards the hospital. 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 than from central lab on. So I think we are and continuing to make progress in that transition in that transition. As you can see in the first quarter, we have recovered in hospital business. It is growing on a year-over-year and sequential basis 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. We expect to win more hospitals going forward. So this is the most important line for our clinical business. So the overall revenue is up 4% on a quarter-over-quarter basis, and that's mostly driven by the in-hospital line. So that is that is the additional comments we'd like to add here 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, G&A expenses, we are at a positive on commercial, our breakeven points in Q1. In the 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. Our latest guidance is to achieve positive non-GAAP gross profit minus SG&A for the whole year of 2024. So that is what we are working on for the year of 2024 to show that on the operating level, our business are profitable, that we have a few R&D items that we're going to work through, and we're going to work towards positive breakeven for the whole company going forward. So that concludes on the remarks for our financial section. And operator, if there are no further remarks or questions, then we're happy to conclude the call.
Operator
Thank you. That does conclude the conference for today. Thank you for participating. You may now all disconnect. Have a nice day.
