SOPHiA GENETICS SA

Good morning and welcome to the Sophia Genetics first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Catherine Bailon, Head of Investor Relations.

Please go ahead.

Good morning, and thank you for joining us on Sophia Genetics' first quarter fiscal 2023 earnings call. My name is Catherine Bailon, and I am the Head of Investor Relations at Sophia Genetics. Joining me today are Dr. Yergi Kamblog, our co-founder and chief executive officer, and Ross Mugen, our chief financial officer and chief operating officer. Before we get started, I'd like to remind you that the management team will make statements during this call that are forward-looking within the meaning of U.S. federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Cautionary Statement Regarding Forward-Looking Statements in Form 6-K on file with the SEC. Except as required by law, Sophia Genetics disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of its broadcast, May 9, 2023. This presentation includes non-IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS. These non-IFRS measures supplement IFRS measures but should not be viewed as substitutes for IFRS measures. We have included a reconciliation of IFRS measures to non-IFRS measures in our press release issued this morning, which is available on our website. Please note, both the replay of this call and the earnings release will be available on our website in the investor relations section. And with that, I'll now turn it over to Yorgi.

Thank you, Catherine, and good morning, everyone. We appreciate you joining us on our call this morning. I am pleased to share that our first quarter results came in strong with total revenue for the first quarter going 37% year-over-year on a constant currency basis after adjusting for COVID-19 related revenues. We delivered this growth while maintaining our fiscal discipline, resulting in meaningful expense reductions from the prior year period, and so I am equally pleased to tell you that our operating loss on an adjusted basis was 16.2 million, an improvement of 4.8 million for the first quarter of 2022. On today's call, I will start by reviewing our progress in the first quarter as it relates to our strong business momentum and the continuous customer adoption of our market-leading platform. And I will then turn it over to Ross McCann, our Chief Financial Officer and Chief Operating Officer, to share our financial results for the period in more detail and our outlook for the remainder of 2023. And then we will end by taking your questions. Let me start with a review of the first quarter highlights. Momentum in our business continues to be robust on a global basis. We added 18 new logos in Q1. Of our more than 750 customers, 437 are core genomics customers that utilize our platform regularly to our dry lab, bundle, and integrated access modes. Our strong Q1 performance is demonstrated by very robust usage numbers across the board. For the first quarter of 2023, analysis volume across our core genomics customers, so close proxy for patients, was 77,819, an all-time high, up 9% sequentially, and up 18% year-over-year. When excluded COVID-19-related volumes, platform analysis volumes were 75,868 for the first quarter of 2023, up 12% sequentially, and up 25% year-over-year. We ended the quarter at nearly 30,000 analyses a month. indicating that we are well on our way to being the leader for technology-agnostic software for genomic and multimodal analytics. I will now highlight some areas of particular strength in the quarter. In EMEA, France, a country with one of our largest and longest-standing presence, continues to demonstrate strong growth. Customers such as Institut Gustave Roussier in Paris among the top cancer centers in Europe and arguably among the top specialized hospitals in the world for the treatment of rare and complex tumors, are expanding their use of our platform. Institut Gustave Roussy began working with Sophia Genetics in 2017 with a vision to offer patients personalized treatment. They will now be using the Sophia DDM capabilities for the analysis of over a dozen cancer-related applications, including solid tumors, hematological and hereditary cancers, establishing our platform as their core genomic analytics platform. We also recently established for Gustave Roussy a new bidirectional communication link from SOFIA-DDM directly to their database. This will enable them to facilitate more efficient interpretation of their research data and help to further grow the internal knowledge database of Institut Gustave Roussy. In the APAC region, I would highlight India, which has usage growth well ahead of our company average in the quarter and well ahead of our expectations. During the quarter, Krishna Diagnostics, a central lab, went live on Sophia DDM technology. Krishna Diagnostics is India's largest diagnostic service provider in radiology and pathology. They will be expanding their current next-generation DNA sequencing offering by adopting Sophia DDM for their hereditary cancer needs. In addition, we announced that Unipath, a leading diagnostic brand in India, has launched HRD testing capabilities with Sophia DDM. The Sophia DDM HRD solution will enable Unipath to retain full ownership of their data, saving time and expense, while offering comprehensive genomic insights powered by deep learning algorithms. In LATAM, Brazil is a country that delivered usage growth in the quarter well above the company average. In this region, I would highlight for you DASA as an example of an expanding customer within our land and expand strategy. DASA is the largest diagnostic company in Latin America and largest integrated healthcare network in Brazil, serving approximately 10% of the Brazilian population. DASA has been a longstanding customer and partner of Sophia Genetics. A year ago, DASA launched HRD testing capabilities on Sophia DDM. And we are pleased to tell you that just one year after implementation, DASA has now analyzed over 2,000 samples using HRD on Sophia DDM, a true testament of the democratization of data-driven medicine. Next, turning to Noram Customer Momentum, I would like to highlight a recent win at the University of Maryland Medical Center, UMMC, who selected SofiaDDM to enhance their capabilities around rare disease detection through the combination of wall exome plus mitochondrial DNA sequencing. Thanks to SofiaDDM, UMMC can maintain their samples in-house and using our artificial intelligence and machine learning capabilities, find a more efficient way to analyze and interpret data, further developing their expertise in rare diseases. Looking at the first quarter from the standpoint of application areas on the SOFIA-DDM platform, in rare disease, we saw world-exam sequencing data volumes grow above company average year-over-year, which supports the broader view that as sequencing costs continue to drop, customers will shift to larger panels at higher volumes. We are encouraged that this trend supports increased value for those that enable large-scale data production within an increasingly complex workflow. In cancer applications, hereditary cancer and solid tumors grew volumes above company average, and some newer areas like HRD and liquid biopsy grew analysis volumes in triple digits. On the biopharma front, We continue to be very active in our engagement with top biopharma companies. The more we discuss our capabilities with the top 20 players, the more we realize their need to have real-world and real-time data. At the recent American Association for Cancer Research, AACR, meeting, we noted high interest in new applications and particular focus on MSK-access liquid biopsy. not the last of which included discussions around DX and global commercial partnerships to support upcoming drug launches with several top 20 pharma. At the AACR meeting, we gave a talk on the decentralization and collective intelligence in precision medicine, highlighting the benefits of having a harmonized platform approach to promote the greatest reach in the 70-plus countries we serve while simultaneously collecting key data in real-time and real-world that can benefit decision-making. Interest in our multicentric deep lung force study was high, particularly with respect to multimodality and predictive analytics, with discussions at the conference looking to apply a similar approach, but beyond lung and into additional indications such as prostate and breast cancers. As you know, Sophia Genetics started 12 years ago on the clinical side, and clinical has been our primary customer focus to date. Biopharma is a new class of customer for us, and while other informatics players have approached the market launching initially with Biopharma, we feel confident about our approach and its uniqueness and value. As we introduced Biopharma to Sophia Genetics, and provide them this unique pathway to anonymize real-time and real-world data not previously available, we believe in our differentiation and its likely success over time. On a related note, we are very much looking forward to attending ASCO, the conference of the American Society of Clinical Oncology next month in Chicago, where Sophia Genetics Technology will be featured in several poster sessions. Of note, our collaborators at the Centre Léon Bérard in Lyon, France, will provide an important update on the clinical validation of HRD using samples from the PAULA-1 study, which was a study supporting the approval of AstraZeneca's PARP inhibitor Olaparib in the first-line treatment for ovarian cancer. Additionally, Sophia will be showcasing exciting new results in the multimodal analytic space as applied to kidney cancer and highlighting how our proprietary multimodal capabilities enable next-generation sequencing stratification of patients according to risk of progression. We expect this work may open many promising avenues for further collaborations with biopharma companies. Taking a step back, I would like to touch on our continued scientific innovations. On this topic, I would like to review for you today a recent publication we made which was accepted in Translational Medicine. It involves the topic of molecular barcoding, a genomics technique that allows labs to detect mutation signals with low tumor content which is becoming quite popular in applications such as somatic genomics profiling or MRD tracking. However, its benefits in different application contexts is not well studied. At Sophia Genetics, we use DNA sequencing data generated by molecular barcoding from various types and quantities of input material such as fresh frozen DNA, formaldehyde treated DNA, and cell-free DNA to evaluate the performance of mutation detection in different clinically relevant contexts. We have demonstrated that benefits of applying molecular barcoding systems are not uniform across different genomic applications. We are excited that our work has been accepted in the Journal of Translational Medicine, a peer-reviewed journal, and will aid clinical labs to understand better their experimental settings and how such will affect analytical performance. In light of this work, we also established a proprietary molecular barcoding system called CUMIIN that encodes the barcode in a novel way and is combined with probability-based variant calling algorithms. This technology has already been incorporated into our offering, notably liquid biopsy, and will facilitate the detection of mutation signals with low tumor traction. Now, moving from scientific aspects of our business to technology, I think it is worth highlighting that last month we attended the HIMSS conference, which is perhaps the most influential health information technology event of the year, a gathering of approximately 40,000 attendees. This year, we were thrilled to attend alongside Microsoft, where we shared a booth and co-hosted a learning lunch. At HIMSS, developments in generative AI and LLM were highlight things in the provider space. Large language model is a type of artificial intelligence algorithm that uses deep learning techniques and massively large data sets. Our new collaboration with Microsoft will leverage these same technologies, as well as conversational AI technologies from Microsoft's 2022 acquisition of Nuance, to create a scalable approach to integrate various structured and unstructured multimodal data to train and test the AI in our ClearPath model. Ultimately, the goal is to enable the collection and sharing of large data sets historically found not just within the EMR, but also in doctor notes, as well as other unstructured formats. With all this momentum, you can sense what makes us super excited about the investments we're making today and their potential in the future. Allow me to wrap up my section by telling you about the two honours that we were bestowed on the company since we last spoke. In March, Sophia Genetics was named to Fast Company's prestigious annual list in the world's most innovative companies for the 2023. And in April, Sophia Genetics joined the ranks of Actelion and Lonza in accepting the Swiss Biotech Success Story Award for our standing contribution as a leader in data-driven medicine. So to conclude my section, I feel as excited today as ever that Sophia Genetics has the elements in place that will enable us to accomplish what we set out to do 12 years ago, to harness data from the global community, to generate actionable insights that contribute meaningfully to patient care and patient outcomes, insights that contribute meaningfully to work our customer success, and that deliver outstanding performance of Sophia Genetics in 2023 and beyond. And now I will turn the call over to Ross to discuss our financial performance in more detail.

Thank you, Yurgi, and good morning, everyone. I'm pleased to share that we started 2023 on a strong note, continuing our commitment to sustainable growth. Turning to the financials, total revenue for the first quarter of 2023 was $14 million, compared to $10.9 million for the first quarter of 2022, representing year-over-year growth of 29%. Constant currency revenue growth was 34%, and constant currency revenue growth excluding COVID-19-related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 77,819 for the first quarter of 2023, compared to 65,694 for the first quarter of 2022. The 18% year-over-year growth was attributable to the strength of our core platform analysis volume, offset by the expected continued decline of our COVID-19-related analysis volume. Excluding COVID-related volume, platform analyses grew a healthy 25% year-over-year in the period. Core genomic customers grew to 437 as of March 31, 2023, up from 426 in the prior year period. This included 14 new routine customers in the quarter. Of note, our definition of core genomic customer now includes all three access modes, including integrated access versus only bundle and dry lab previously, and is a better representation of DDM land adoption. Annualized revenue churn rate was 4% during the first quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 107%. Constant currency net dollar retention, excluding COVID-related revenue, was 118%. Strong NDR and a healthy level of backlog continue to provide us with a high level of revenue visibility going forward. Gross profit for the first quarter of 2023 was $9.7 million compared to gross profit of $6.7 million in the first quarter of 2022, representing year-over-year growth of 44%. Gross margin was 69% for the first quarter of 2023 compared with 62% for the first quarter of 2022. Adjusted gross profit was $10.1 million an increase of 47% compared to adjusted gross profit of $6.9 million in the first quarter of 2022. Adjusted gross margin was 73% for the first quarter of 2023 compared to 64% for the first quarter of 2022. Of note, in the period, we did again benefit from an expected one-time credit of approximately $300,000 related to our previously disclosed cloud optimization efforts. Overall, I remain encouraged by our progress on gross margin expansion, and I'm increasingly confident in our medium-term goal of sustaining adjusted gross margins in excess of 70%. Total operating expenses for the first quarter of 2023 were $29 million, compared to $31.7 million for the first quarter of 2022. Adjusted operating expenses were $26.3 million, compared to $27.9 million in the first quarter of 2022. Headcount, our most significant expense, was down versus the prior year, but remained relatively flat sequentially. We continue to make progress on containing our discretionary expenditures and remain hyper-focused on maximizing capital efficiency while sustaining targeted growth levels. Turning to operating loss for the first quarter of 2023, it was $19.3 million compared to $25 million in the first quarter of 2022. Adjusted operating loss for the first quarter of 2023 was $16.2 million compared to $21 million for the first quarter of 2022. Cash and cash equivalents were approximately $162 million as of March 31, 2023. Now turning to our 2023 outlook. Based on our strong start to fiscal year 2023, we are reiterating all elements of our annual guidance. We continue to expect reported revenue growth to be at or above 30% in 2023. Constant currency revenue growth, excluding COVID-19 related revenue for 2023, is expected to be between 30% and 35% in line with our previously highlighted long-term expectations. Of note, we continue to expect a headwind to 2023 reported revenues of approximately $1 million related to a ceasing of COVID-19 related contribution, which was minimal in the first quarter. This will equate to a headwind of approximately 19,000 analysis to reported volumes. Furthermore, we would note that exchange rates remain highly volatile But at the moment, we anticipate a modest impact to reported results, albeit I would note that they have improved slightly from our fourth quarter call. Lastly, following on strong cost performance continuing in the first quarter of 2023, Sophia Genetics expects 2023 operating losses to be below 2022 levels. With that, I'd like to turn the call back over to Yergi for the closing remarks before we take your questions.

Thank you, Ross. We're extremely proud of our performance, which we believe reflects our continued ability to execute on our vision and the opportunity ahead. Sophia's success stands on our ability to delight customers and continue driving more and more usage of our platform. I am encouraged and as confident as ever about the long-term path that we are on. We have a fantastic opportunity to drive compelling returns and shoulder value. In closing, thank you to our Sophia colleagues, partners, customers, and investors for joining us in our journey. Without you, none of this would be possible. Please note, next month, we are attending the William Blair Growth Conference in Chicago. I look forward to continuing to update you on Sophia's future success of democratizing data-driven medicine. Operator, you may now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster.

And our first question will come from Tejas Shaban of Morgan Stanley.

Please go ahead.

Hey, guys. Good morning and thanks for the time here. Maybe I'll start with one, Ross, or perhaps Yurgy, you can chime in as well. I think you did a 30,000 sort of monthly run rate here in March. I think that was, that compares to about 24,000 at the end of the last quarter. So really nice tick up there. But you've kept the guide sort of unchanged here. Just wanted to get some color around the degree of like conservatism in light of the recent momentum here. And Ross, I think in your prepared remarks, I caught you mentioning something about a change in volume definition. Does that sort of like play into this sort of monthly run rate dynamic at all? Any color would be helpful. Thank you.

Yes, good morning, Tejas, and thanks for the questions. Indeed, you are touching something we're very excited about. So first, now, there was no change on the definition for the volume of analysis. The change in the definition was for the number of recurring platform customers. So on the volume of analysis, indeed, we end up with a high demand in Q1, almost 30,000 analysis to your point in March. And all in all, 77,918 analyses, including COVID-related analyses in Q1, which is basically 18% up versus Q1 2022. And even more important, I would say just 9% up versus Q4 2022. I think the demand just really comes from hospitals and labs that are adopting bigger sequencers, right? And I've been traveling recently as well in Canada, in Montreal, and in New York, and it was pretty fascinating to see how hospitals are moving, if we refer to the Illumina sequencers, you know, beyond Nexic to Novacic. And I think this is primarily now driving higher volume of consumption, as well as the consumption of larger gene panels. When it comes to the guidance, maybe I will leave Ross' answer to you.

Thanks, Deja. So in terms of just the start to the year and the full year guide, I would say obviously we're encouraged by demand in general. And, you know, we had very strong bookings all throughout last year. And obviously, as we've talked about, that gives us a good degree of visibility. And so I would say relative visibility. to our own expectations. We did come in a bit above in Q1 on the volume side. So it was strong overall, and we did close the quarter quite well. It is a consumption-based model, I will remind you. And so, you know, it's not as if you get up to that run rate and then you're all of a sudden catering at that. You know, we'll expect some variability, particularly in the third quarter, where you typically see in the summer months a bit of a dip. But overall, we're very encouraged by the start. In terms of the definitional change, you know, there was a slight benefit, but it was de minimis. It integrated as a very, very small percent of our business, less than 1%. Not not much change there. This is truly, I would say, underlying volume strength. And again, if you look globally at where we're winning some business and some of the new countries, I'm sure you're you will talk about it as well. You know, some of these are our initial starts are quite high volume. And so. We're very encouraged overall around sort of the environment and obviously look forward to be able to continue to deliver on our results for the year. And given it's Q1, we obviously decided not to make any formal change. And, you know, we obviously aim to be able to continue to deliver on on what we have said. And ideally, if the underlying volume environment continues above our own expectation, we will obviously update you. But at this point, I think it's prudent to leave it as is.

Got it. That's helpful. And actually, it's a nice segue into my next question. Yogi, you highlighted a couple of sort of marquee wins in India over here, one with Unipath and the other with Christian Diagnostics. How big is that opportunity for you over the medium term? And to what degree are you seeing cross-selling sort of kick in among your existing customers there? You highlighted Unipath being more HRD. Are they starting to adopt like some of the other tests as well? And same question for Krishna and your other existing customers.

Yes, thanks for that question, Tejas. First, we're very proud, right? Our tagline is democratizing data-driven medicine, and so we're very proud to help as well, indeed, market names, but in countries which are other than the U.S. and Europe. So as a reminder, we started in India signing Tata Memorial Hospital, so another market name with whom we're working on multiple applications, but we started with them on solid tumor testing, And a bit similarly indeed with Unipass and Krishna Diagnostics. So these are customers that we have onboarded on the first application. So for one of them it has been on HRD testing, which is I think an application where now we can tell we have unique capabilities given the adoption we've been having since a year time. But to your point, yes, we have as well upselling opportunities into these centers as we have in any. And so just to remind to everyone who is listening to us, our model is really a land and expand model. So we penetrate an account most of the time with one application, such as HRD. And then once they start adopting our platform, this gives us the opportunity to expand beyond other applications. And so along those lines, beyond India, where we are actually very enthusiastic, We are as well very happy with the performance of some of the historical centers that we have recently expanded. DASA that we've been talking a lot about and now we've been announcing and celebrating the fact that over the last 12 months we've been helping them on doing 2,000 analyses on HRD, but as well another marquee name in Europe, maybe the most sophisticated cancer center in Europe, Institut Gustave Roussy, with whom now basically we work so that We help them across all the cancer applications they cover and for which they produce genomic data. So very interested and I would say very excited about the penetration in India. And I think this will give us ideas as well eventually to go in the future to other similar markets.

And I would just add, you know, one of the interesting dynamics is obviously we've seen adoption there both of central labs as well as academic medical centers. So I think that's quite encouraging for the market. We also recently did an event with our partner GE there, which I would say was quite good in terms of broad branding across quite a number of hospitals. Obviously, you know it's a very large country in terms of population. They've come a little bit later, I would say, in Asia-Pac to the sequencing game. But obviously, they're bringing huge populations. So even at lower price points, it's a really nice long-term opportunity for us. But again, one of many across the globe where we're seeing really nice adoption.

Got it. And then, Yogi, can you give us a quick update on the Agilent and QIAGEN partnerships? I mean, there's still sort of early days there, but just curious as to what you're seeing in terms of, you know, opening up the opportunity among new customers for you and so on.

Yes, look, thanks, Tejas. Indeed, we announced these partnerships, which are important partnerships in QIAGEN. uh for our q4 results right in uh in uh in march april sorry in april um and uh since then we've been very nicely working with uh both companies we are revising uh the partnership yesterday in our executive team meeting so we are being able to create a number of uh opportunities with existing and new customers in the US, in Germany in particular, by combining our platform with direct consumables. So we're very excited about those partnerships and we believe that And to your point, this is early, but if we are successful in the first opportunities we work on together, that this should benefit as well to Sophia in being able to land new customers and continue to grow significantly the number of analyses quarter on quarter.

And I would just add, you know, the engagement up and down those organizations from the field all the way up through the C-suite has been great and really speaks, I think, to sort of the evolution of the market where obviously everyone realizes data and analytics or where we play is important. incredibly important piece of the puzzle, particularly as sequencing costs are coming down and volumes are likely to go up. And so it's great to have these very large and significant organizations, right, that have quite a significant commercial presence and great product portfolios recognize that we are a very strong partner to them and can help in sort of that market evolution.

Got it. And then one final one on the gross margin side for you, Ross. I think you did 73% non-gap in the quarter, nicely above your long-term goal there. So just curious as to any context you can share in terms of how you're thinking about those long-term targets. You probably don't want to raise them today on this call, but any color on that would be helpful.

Yes, thanks for calling this one, Tejas. This is a result of a lot of discipline. So maybe taking a step back, right? We've been able to grow year on year on constant currency and excluding COVID at 37%. While in the meantime, we've been basically able to improve our gross profit year on year by 47%, right? So I think definitely this highlights the discipline we added in being latter focused on the cost side. and basically being pretty selective, targeted in the investments we're making. Very proud with this gross margin, big improvement indeed. Just as a reminder, the 73% on a gross margin adjusted basis compared to 64% in Q1 2022. So kudos to our teams at SOFIA because they have been working very hard to be, I would say, even more efficient than we have ever been. And when it comes to the guidance, I will leave it to Ross.

Yeah, so obviously really impressed by the team's execution here. It's been a big focus, as you know, right, as we're trying to push toward profitability. There's a number of levers, right? You obviously have revenue growth, you have your incremental gross margin, and then you have OPEX controls. And so we've been trying to balance I think here we're really proud of the gross margin execution. You know, on the technology side, our partnership with Microsoft and our efforts around architecture I think are really playing off there. I think we still have more room to go per, you know, per sort of GB in terms of cost of hosting and cost of storage. But, you know, the other dynamic that's happening is there is a shift, and we'll talk about it I'm sure later, to larger panels. to whole genome sequencing. And so we're also on that path to kind of preparing for a bigger explosion of data. And so in that, you know, we are ensuring we are future-proofed in terms of where all of these different technologies are going. But frankly, some of this is just good old-fashioned, you know, rolling up your sleeves and saving money execution and labor absorption and all of the things that drive gross margins in the software business. And so I'm really proud. As you mentioned, we're not going to be changing the long-term guide, but I do think obviously our confidence in sustaining, let's say, 70% plus gross margin continues to go up. And obviously at a later date, as we take a look at it, we'll have a formal update for you on sort of the targets. But certainly you would think relative to where a software business should operate, we're getting closer to what you would normally expect from a consumption-based business. And frankly, if you compare us to some of the players on the technology side, pure tech players, we're actually now above those levels. So I feel really good about our discipline and execution.

Got it.

Thanks, guys. Appreciate the time. Thank you to Jeff.

The next question comes from Julia Quinn of J.P. Morgan. Please go ahead.

Hello, thank you for taking the questions. This is Marta. I have two quick questions. Maybe you could discuss macro headwinds you experienced in the quarter. I know towards the end of the call, you mentioned that FX has traded better, but what are you seeing perhaps in terms of customer funding constraints and are there any differences that you're seeing geographically? Thank you.

Yes, thank you, Marta.

So first, I would start highlighting that there is demand everywhere, right? So when it comes to the macro level, but in genomics, right? So from the recent visits I had personally in the U.S. and in Canada or in Europe, it's obvious that the demand is growing. And I would say from one out of two meetings we're doing, it's clear that there is an opportunity for Sophia to either expand the usage of the platform for a new application or otherwise land the platform with a new customer. So in that sense, I would say at the macro level, when it comes to clinical genomics, huge excitement. A lot of excitement as well on the biopharma side, where I would say there is a growing demand on getting access to tech capabilities that are combining multimodal offerings, so genomics, radiomics, and clinical in particular. But beyond that as well, a lot of excitement on being able to work with a taxpayer that can get access to real-time and real-world data through a network of 750 plus hospitals and labs in 70 countries. Beyond that, maybe on the macro level when it comes to, you know, the currencies and so on, I will leave a rough comment.

Yeah, so obviously for us, just given the ex-U.S. exposure, currency movements, which I would say have been quite volatile, continue to bump around. I wouldn't say it's had an effect on demand. It's more on a reported basis. And so, again, just sort of something outside of our control. But certainly, as we think about sort of the remainder of the year, there's no reason for us to think, you know, you're going to see anything different than sort of what we saw in the recent period, which is strong underlying demand, but then quite a bit of noise on the reporting side. I will say, you know, at the customer level, we certainly see economic pressures, right, in certain parts of the world, you know, particularly in the U.S., for a number of the customers on the labor side. Labor markets for a lot of our folks are still quite tight, where some of the larger central lab players are obviously moving to cut costs. I would say in some of that, frankly, for us, it's a positive, right? Whether that means they need us to help them with menu expansion or with cost savings or on the COG side, We've had a lot more of those conversations with a number of different players. But frankly, the underlying dynamic for the industry overall, at least as we can see, is still quite good. We're certainly, though, always prepared for changing the environment. And so we're in the field all the time. We obviously have a very large presence there. globally. And so we're small, but our ears are to the street. But we don't know much more in terms of how whatever happens over the remainder of this year economically will sort of play out. But I would say for us, we're prepared for any environment. And we're also, thankfully, in a business where the visibility remains quite good. And so So overall, you know, while not everything plays out exactly as you want, we tend to be able to also attempt to pull different levers to make sure we're hitting our results. And so we're going to obviously continue to attempt to do that for the remainder of this year.

Great. Thank you. And I guess the second question, more on the modeling front, how should we think about revenue and gross margin pacing for the rest of the year? Any color you can share there? Thank you.

Yes, thank you, Martha. So indeed, as well, the answer to Tejas, we're very proud about the post-marketing performance for Q1, which was 73% on an adjusted basis versus 64% in Q1 2022. This has been the result of definitely growing the business, 37% year-on-year on concentration, excluding COVID versus Q1 2022. But this has been as well the result of a lot of focus on targeted investments. as well as continuous improvement on better controlling costs, and in particular, our indirect costs. So, again, kudos to our teams. I think this is a strong quarter, and we need to recognize all the hard work of our Sophia colleagues. And beyond that, Ross, I don't know if you want to give some color on how you see that evolving in the future.

Right. So, obviously, our business being consumption-based, you know, it tends to follow a bit of what you would think of as the utilization cycle, which tends to be sort of building over the course of the year, a seasonal dip in 3Q, and then I would say a bit stronger results in the fourth quarter. And this is similar to what we've seen in the past. I would say this year, the one caveat I would give is just given some of the timing of some large contracts coming on, I would expect the third and fourth quarter to be even a bit stronger than is typical for us just in terms of overall payments. But overall, I would say we'd follow on an analysis basis more of the normal sequencing of our year. Now, on the gross margin side we did call out about a 300 000 benefit from uh you know the cloud side in q2 that will cease sorry in q1 that will cease in q2 so you you know you will see now sort of i would say the new run rate of gross margins in the second quarter for us that we hope to obviously build off of but but certainly uh some degree of variability in either regional demand or in product demand can always influence that number so i'm not going to give you an exact amount for Q2 or the remainder of the year, but I would say you certainly want to pull out that $300,000 benefit as you think about Q2 and then again think about that being sort of the new rebasing for where we are as we now come out of this period where we spent quite a bit of energy on gross margin expansion.

That's very helpful. Thank you.

Thank you, Maritza.

The next question comes from Dan Brennan of TD Cowan.

Please go ahead.

Hey, good morning. This is Kyle on for Dan. Thanks for taking the questions here. Maybe starting on just the composition of the guidance, can you just remind us what is implied in your guide for volume and pricing this year? And can you provide any color on what the average revenue per platform customer was in 1Q? Thank you.

So, in terms of the guidance, right, and we're focused really on that 30% to 35% ex-COVID growth, I would say there we're still expecting volumes to be in the high teens, and then the remainder would obviously come from ASP, and I would say mix and farm up, right? So that sort of contribution today, there is really no change to that, even though obviously we had better than anticipated volume growth in the first quarter. Certainly, as we think about our business, again, it is consumption-based, and so there could be timing elements, which is for us why, again, given we're in Q1, we want to remain conservative on the outlook. But, again, we're constructive with how things have kind of developed in terms of the full-year picture. In terms of the other portion, I don't know, Yurgi, if you have anything else you want to add there, but for me, you know, we generally feel quite confident with what we've communicated.

Got it. And then maybe just an update on the pharma partnerships. When do those become more meaningful? Is that something that happens, you know, way in the back half of this year and into 24? Or, you know, when should we see a notable contribution?

Yes, so as you remember, Kyle, we started our journey by first building our platform serving customers which are in the clinical space, right? And this is because we wanted to own a network of connected hospitals and labs that would be computing real-time, real-world data that are then being computed through the platform and our algorithms, and on which basis we're being paid as we compute the data. And as a second, we knew that when we would have been able to build such a network, this would be extremely valuable to help patients working with the biopharma companies pre- and post-approval of drugs. So this has been a more recent market to us, but a market where, as we've been, I would say, announcing a number of deals, we have been seeing great traction since a year now. And maybe I will call two of the announcements we made last year and beginning of this year with Boundless Bio and AstraZeneca. So these partnerships are being well executed, but as you know, unlike our business on the clinical side, which is consumption-based and purely, if you like, based on the volume of data we compute, these type of partnerships are sometimes based as well on specific type of milestones where we need to deliver some objectives. And we're basically getting access to the data might be a step where computing data might be another step. So what basically I'm telling you is that while indeed this opportunities and partnership we signed are being well executed, you should indeed consider that they will come rather towards the end of the year in terms of revenue recognition.

And as a quick reminder, particularly relative to the pharma customer base, right, you know, as you remember, as we've reported previously, you know, ARPU had been around, let's say, 100K roughly. And that's more indicative, I would say, of what a clinical customer would look like. On the pharma side, you know, it's multiples of that, right? And many times, significant seven-figure or eight-figure even contracts potentially over time. And so with that, obviously start date and sort of when they ramp is really important from a cadence perspective. And so you can imagine with the visibility we have on the clinical business, Obviously, there we feel quite good, even though it's consumption based on how that will fall. On the far side, we're still early enough where, you know, even a month or two month or three month change in start date will have a pretty material impact quarter to quarter on sort of recognition. Again, overall, the contracts are quite visible. But, you know, in that, that's why I would say for this year with some of the ramping, you do see a little bit more recognition of revenue likely in the second half of this year. But that will continue in terms of some of those moving parts dependent on how the pharma starts. And again, there as we have more pharma contracts, it will start to average out. to you on the reported side. But remember, we don't also give analysis volume relative to pharma. And so, you typically will see that as many of that is around data development, you know, on the ASP side. And so, just from a modeling standpoint, keep that point in mind.

And I would add, Kyle, beyond the modeling side for the revenue recommission, which is definitely important and where I think you understand that we have already these opportunities in the bag and we're executing them. Even more maybe important to highlight that the demand on the pharma side continues to grow. I think the strategic offering of SOFIA along the 3D, which is from discovery to development to deployment all around data, is more and more understood. And at ASCO, we already have a lot of activities that are being planned with the top pharma company to discuss about potential deals.

Got it. Thank you, guys. Thank you, Kyle.

This concludes our question and answer session. I would like to turn the conference back over to Dr. Yergi Kambalong for any closing remarks.

Well, thank you all for joining us today. Q1 has been a very strong performance for Sophia, and I really would like to thank all the Sophians who have been working very hard and being very disciplined, very passionate, so that our performance could be such. Stay tuned. We're going to be at the ASCO conference in beginning of June in Chicago. Following that, we will be as well at the William Blair conference. And so we will be very eager to meet partners and investors while we are in these conferences.

Thank you so much again, and have a good day.

The conference is now concluded.

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Good morning and welcome to the Sophia Genetics first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Catherine Bailon, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on SOFIA Genetics First Quarter Fiscal 2023 Earnings Call. My name is Catherine Bailon, and I am the Head of Investor Relations at SOFIA Genetics. Joining me today are Dr. Yergi Camblog, our co-founder and Chief Executive Officer, and Ross Mugen, our Chief Financial Officer and Chief Operating Officer. Before we get started, I'd like to remind you that the management team will make statements during this call that are forward-looking within the meaning of U.S. federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Cautionary Statement Regarding Forward-Looking Statements in Form 6K on file with the SEC. Except as required by law, Sophia Genetics disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of its broadcast, May 9, 2023. This presentation includes non-IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS. These non-IFRS measures supplement IFRS measures, but should not be viewed as substitutes for IFRS measures. We have included a reconciliation of IFRS measures to non-IFRS measures in our press release issued this morning, which is available on our website. Both the replay of this call and the earnings release will be available on our website in the investor relations section. And with that, I'll now turn it over to Yorgi.

Thank you, Catherine, and good morning, everyone. We appreciate you joining us on our call this morning. I am pleased to share that our first quarter results came in strong with total revenue for the first quarter growing 37% year-over-year on a constant currency basis. after adjusting for COVID-19 related revenues. We delivered this growth while maintaining our fiscal discipline, resulting in meaningful expense reductions from the prior year period, and so I am equally pleased to tell you that our operating loss on an adjusted basis was $16.2 million, an improvement of $4.8 million for the first quarter of 2022. On today's call, I will start by reviewing our progress in the first quarter as it relates to our strong business momentum and the continuous customer adoption of our market-leading platform. And I will then turn it over to Ross McCann, our Chief Financial Officer and Chief Operating Officer, to share our financial results for the period in more detail and our outlook for the remainder of 2023. And then we will end by taking your questions. Let me start with a review of the first quarter highlights. Momentum in our business continues to be robust on a global basis. We added 18 new logos in Q1. Of our more than 750 customers, 437 are core genomics customers that utilize our platform regularly to our dry lab, bundle, and integrated access modes. Our strong Q1 performance is demonstrated by very robust usage numbers across the board. For the first quarter of 2023, analysis volume across our core genomics customers, a close proxy for patients, was 77,819, an all-time high, up 9% sequentially and up 18% year-over-year. When excluded COVID-19 related volumes, platform analysis volumes were 75,868 for the first quarter of 2023, up 12% sequentially and up 25% year-over-year. We ended the quarter at nearly 30,000 analyses a month, indicating that we are well on our way to being the leader for technology-agnostic software for genomic and multimodal analysis. I will now highlight some areas of particular strength in the quarter. In EMEA, France, a country with one of our largest and longest-standing presence, continues to demonstrate strong growth. Customers such as Institut Gustave Roussier in Paris, among the top cancer centers in Europe and arguably among the top specialized hospitals in the world for the treatment of rare and complex tumors, are expanding their use of our platform. Institut Gustave Roussy began working with Sophia Genetics in 2017 with a vision to offer patients personalized treatment. They will now be using the Sophia DDM capabilities for the analysis of over a dozen cancer-related applications, including solid tumors, hematological and hereditary cancers, establishing our platform as their core genomic analytics platform. We also recently established for Gustave Roussy a new bi-directional communication link from Sofia DBM directly to their database. This will enable them to facilitate more efficient interpretation of their research data and help to further grow the internal knowledge database of Institut Gustave Roussy. In the APAC region, I would highlight INDIA, which has usage growth well ahead of our company average in the quarter. and well ahead of our expectations. During the quarter, Krishna Diagnostics, a central lab, went live on Sophia DDM technology. Krishna Diagnostics is India's largest diagnostic service provider in radiology and pathology. They will be expanding their current next-generation DNA sequencing offering by adopting Sophia DDM for their hereditary cancer needs. In addition, we announced at Unipath A leading diagnostic brand in India has launched HRD testing capabilities with Sofia DDM. The Sofia DDM HRD solution will enable Unipath to retain full ownership of their data, saving time and expense, while offering comprehensive genomic insights powered by deep learning algorithms. In LATAM, Brazil is a country that delivered usage growth in the quarter well above the company average. In this region, I would highlight for you DASA as an example of an expanding customer within our land and expand strategy. DASA is the largest diagnostic company in Latin America and largest integrated healthcare network in Brazil, serving approximately 10% of the Brazilian population. DASA has been a longstanding customer and partner of Sofia Genetics. A year ago, DASA launched HRD testing capabilities on Sofia DDM. And we are pleased to tell you that just one year after implementation, DASA has now analyzed over 2,000 samples using HRD on Sofia DDM, a true testament of the democratization of data-driven medicine. Next, turning to Noram Customer Momentum, I would like to highlight a recent win at the University of Maryland Medical Center, UMMC. who selected Sophia DDM to enhance their capabilities around rare disease detection through the combination of wall exome plus mitochondrial DNA sequencing. Thanks to Sophia DDM, UMMC can maintain their samples in-house and using our artificial intelligence and machine learning capabilities, find a more efficient way to analyze and interpret data, further developing their expertise in rare disease. Looking at the first quarter from the standpoint of application areas on the Sophia DDM platform, in rare disease, we saw wall-exam sequencing data volumes grow above company average year-over-year, which supports the broader view that as sequencing costs continue to drop, customers will shift to larger panels at higher volumes. We are encouraged that these trends support increased value for those that enable large-scale data production within an increasingly complex workflow. In cancer applications, hereditary cancer and solid tumors grew volumes above company average, and some newer areas like HRD and liquid biopsy grew analysis volumes in triple digits. On the biopharma front, we continue to be very active in our engagement with top biopharma companies. The more we discuss our capabilities with the top 20 players, the more we realize their need to have real-world and real-time data. At the recent American Association for Cancer Research, AACR, meeting, we noted high interest in new applications and particular focus on MSK-access liquid biopsy, not the last of which included discussions around and global commercial partnerships to support upcoming drug launches with several top 20 pharma. At the AACR meeting, we gave a talk on the decentralization and collective intelligence in precision medicine, highlighting the benefits of having a harmonized platform approach to promote the greatest reach in the 70 plus countries we serve while simultaneously collecting key data in real-time and real-world, that can benefit decision-making. Interest in our multicentric deep lung force study was high, particularly with respect to multimodality and predictive analytics, with discussions at the conference looking to apply a similar approach, but beyond lung, and into additional indications such as prostate and breast cancer. As you know, Sophia Genetics started 12 years ago on the clinical side. and clinical has been our primary customer focus to date. BioPharma is a new class of customer for us, and while other informatics players have approached the market launching initially with BioPharma, we feel confident about our approach and its uniqueness and value. As we introduce BioPharma to SOPIA Genetics and provide them this unique pathway to anonymize real-time and real-world data not previously available, We believe in our differentiation and it's likely success over time. On a related note, we are very much looking forward to attending ASCO, the conference of the American Society of Clinical Oncology next month in Chicago, where SOPHIA genetics technology will be featured in several poster sessions. Of note, our collaborators at the Centre Léon Bérard in Lyon, France, will provide an important update on the clinical validation of HRD using samples from the PAULA-1 study, which was a study supporting the approval of AstraZeneca's PARP inhibitor Olaparib in the first-line treatment for ovarian cancer. Additionally, Sophia will be showcasing exciting new results in the multimodal analytic space as applied to kidney cancer and highlighting how our proprietary multimodal capabilities enable next-generation sequencing stratification of patients according to risk of progression. We expect this work may open many promising avenues for further collaborations with biopharma companies. Taking a step back, I would like to touch on our continued scientific innovations. On this topic, I would like to review for you today a recent publication we made which was accepted in Transnational Medicine. It involves the topic of molecular barcoding, a genomics technique that allows labs to detect mutation signals with low tumor content, which is becoming quite popular in applications such as somatic genomics profiling or MRD tracking. However, its benefits in different application contexts is not well studied. At Sophia Genetics, We use DNA sequencing data generated by molecular barcoding from various types and quantities of input materials such as fresh frozen DNA, formaldehyde treated DNA, and cell-free DNA to evaluate the performance of mutation detection in different clinically relevant contexts. We have demonstrated that benefits of applying molecular barcoding systems are not uniform across different genomic applications. We are excited that our work has been accepted in the Journal of Translational Medicine, a peer-reviewed journal, and we'll aid clinical labs to understand better their experimental settings and how such will affect analytical performance. In light of this work, we also established a proprietary molecular barcoding system called CUMIN that encodes the barcode in a novel way and is combined with probability-based variant calling algorithms. This technology has already been incorporated into our offering, notably liquid biopsy, and will facilitate the detection of mutation signals with low tumor fraction. Now, moving from scientific aspects of our business to technology, I think it is worth highlighting that last month we attended the HIMSS conference, which is perhaps the most influential health information technology event of the year. a gathering of approximately 40,000 attendees. This year, we were thrilled to attend alongside Microsoft, where we shared a booth and co-hosted a learning lunch. At HIMSS, development in generative AI and LLM were highlight themes in the provider space. Large language model is a type of artificial intelligence algorithm that uses deep learning techniques and massively large data sets. Our new collaboration with Microsoft will leverage these same technologies, as well as conversational AI technologies from Microsoft's 2022 acquisition of Nuance, to create a scalable approach to integrate various structured and unstructured multimodal data to train and test the AI in our ClearPath model. Ultimately, the goal is to enable the collection and sharing of large data sets historically found not just within the EMR, but also in doctor notes as well as other unstructured formats. With all this momentum, you can sense what makes us super excited about the investments we're making today and their potential in the future. Allow me to wrap up my section by telling you about the two honours that we were bestowed on the company since we last spoke. In March, Sophia Genetics was named to Fast Company's prestigious annual list in the world's most innovative companies for the 2023. And in April, Sophia Genetics joined the ranks of Actelion and Lonza in accepting the Swiss Biotech Success Story Award for our standing contribution as a leader in data-driven medicine. So to conclude my section, I feel as excited today as ever that Sophia Genetics has the elements in place that will enable us to accomplish what we set out to do 12 years ago, to harness data from the global community, to generate actionable insights that contribute meaningfully to patient care and patient outcomes, insights that contribute meaningfully to work our customer success, and that deliver outstanding performance of Sophia Genetics in 2023 and beyond. And now I will turn the call over to Ross to discuss our financial performance in more detail.

Thank you, Yurgi, and good morning, everyone. I'm pleased to share that we started 2023 on a strong note, continuing our commitment to sustainable growth. Turning to the financials, total revenue for the first quarter of 2023 was $14 million, compared to $10.9 million for the first quarter of 2022, representing year-over-year growth of 29%. Constant currency revenue growth was 34%, and constant currency revenue growth excluding COVID-19 related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 77,819 for the first quarter of 2023, compared to 65,694 for the first quarter of 2022. The 18% year-over-year growth was attributable to the strength of our core platform analysis volume, offset by the expected continued decline of our COVID-19-related analysis volume. Excluding COVID-related volume, platform analyses grew a healthy 25% year-over-year in the period. Core genomic customers grew to 437 as of March 31, 2023, up from 426 in the prior year period. This included 14 new routine customers in the quarter. Of note, our definition of core genomic customer now includes all three access modes, including integrated access versus only bundle and dry lab previously. and is a better representation of DDM land adoption. Annualized revenue churn rate was 4% during the first quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 107%. Constant currency net dollar retention, excluding COVID-related revenue, was 118%. Strong NDR and a healthy level of backlog continue to provide us with a high level of revenue visibility going forward. Gross profit for the first quarter of 2023 was $9.7 million, compared to gross profit of $6.7 million in the first quarter of 2022, representing year-over-year growth of 44%. Gross margin was 69% for the first quarter of 2023, compared with 62% for the first quarter of 2022. Adjusted gross profit was $10.1 million, an increase of 47% compared to adjusted gross profit of $6.9 million in the first quarter of 2022. Adjusted gross margin was 73% for the first quarter of 2023 compared to 64% for the first quarter of 2022. Of note, in the period, we did again benefit from an expected one-time credit of approximately $300,000 related to our previously disclosed cloud optimization efforts. Overall, I remain encouraged by our progress on gross margin expansion and I'm increasingly confident in our medium-term goal of sustaining adjusted gross margins in excess of 70%. Total operating expenses for the first quarter of 2023 were $29 million, compared to $31.7 million for the first quarter of 2022. Adjusted operating expenses were $26.3 million, compared to $27.9 million in the first quarter of 2022. Headcount, our most significant expense, was down versus the prior year, but remained relatively flat sequentially. We continue to make progress on containing our discretionary expenditures and remain hyper-focused on maximizing capital efficiency while sustaining targeted growth levels. Turning to operating loss for the first quarter of 2023, it was $19.3 million compared to $25 million in the first quarter of 2022. Adjusted operating loss for the first quarter of 2023 was $16.2 million compared to $21 million for the first quarter of 2022. Cash and cash equivalents were approximately $162 million as of March 31, 2023. Now turning to our 2023 outlook. Based on our strong start to fiscal year 2023, we are reiterating all elements of our annual guidance. we continue to expect reported revenue growth to be at or above 30% in 2023. Constant currency revenue growth, excluding COVID-19 related revenue for 2023, is expected to be between 30% and 35% in line with our previously highlighted long-term expectations. Of note, we continue to expect a headwind to 2023 reported revenues of approximately $1 million related to a ceasing of COVID-19-related contribution, which was minimal in the first quarter. This will equate to a headwind of approximately 19,000 analysis to reported volumes. Furthermore, we would note that exchange rates remain highly volatile, but at the moment, we anticipate a modest impact to reported results. albeit I would note that they have improved slightly from our fourth quarter call. Lastly, following on strong cost performance continuing in the first quarter of 2023, Sophia Genetics expects 2023 operating losses to be below 2022 levels. With that, I'd like to turn the call back over to Yurgi for the closing remarks before we take your questions.

Thank you, Ross. We're extremely proud of our performance. which we believe reflects our continued ability to execute on our vision and the opportunity ahead. Sophia's success stands on our ability to delight customers and continue driving more and more usage of our platform. I am encouraged and as confident as ever about the long-term path that we are on. We have a fantastic opportunity to drive compelling returns and shoulder value. In closing, Thank you to our Sophia colleagues, partners, customers, and investors for joining us in our journey. Without you, none of this would be possible. Please note, next month, we are attending the William Blair Growth Conference in Chicago. I look forward to continuing to update you on Sophia's future success of democratizing data-driven medicine. Operator, you may now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster. And our first question will come from Tejas Shaban of Morgan Stanley. Please go ahead.

Hey, guys. Good morning and thanks for the time here. Maybe I'll start with one, Ross, or perhaps Yurgy, you can chime in as well. I think you did a 30,000 sort of monthly run rate here in March. I think that was, that compares to about 24,000 at the end of the last quarter. So really nice tick up there. But you've kept the guide sort of unchanged here. Just wanted to get some color around the degree of like conservatism in light of the recent momentum here. And Ross, I think in your prepared remarks, I caught you mentioning something about a change in volume definition. Does that sort of like play into this sort of monthly run rate dynamic at all? Any color would be helpful. Thank you.

Yes, good morning, Tejas, and thanks for the questions. Indeed, you are touching something we're very excited about. So first, now, there was no change on the definition for the volume of analysis. The change in the definition was for the number of recurring platform customers. So on the volume of analysis, indeed, we end up with a high demand in Q1, almost 30,000 analysis to your point in March. And all in all, 77,918 analyses, including COVID-related analyses in Q1, which is basically 18% up versus Q1 2022. And even more important, I would say just 9% up versus Q4 2022. I think the demand just really comes from hospitals and labs that are adopting bigger sequencers, right? And I've been traveling recently as well in Canada, in Montreal, and in New York, and it was pretty fascinating to see how hospitals are moving, if we refer to the Illumina sequencers, you know, beyond Nexic to Novacic. And I think this is primarily now driving higher volume of consumption, as well as the consumption of larger gene panels. When it comes to the guidance, maybe I will leave Ross' answer to you.

Thanks, Deja. So in terms of just the start to the year and the full year guide, I would say obviously we're encouraged by demand in general. And, you know, we had very strong bookings all throughout last year. And obviously, as we've talked about, that gives us a good degree of visibility. And so I would say relative visibility, To our own expectations, we did come in a bit above in Q1 on the volume side. So it was strong overall, and we did close the quarter quite well. It is a consumption-based model, I will remind you. And so, you know, it's not as if you get up to that run rate and then you're all of a sudden cagering at that. I think You know, we'll expect some variability, particularly in the third quarter, where you typically see in the summer months a bit of a dip. But overall, we're very encouraged by the start. In terms of the definitional change, you know, there was a slight benefit, but it was de minimis. It integrated as a very, very small percent of our business, less than 1%. Not not much change there. This is truly, I would say, underlying volume strength. And again, if you look globally at where we're winning some business and some of the new countries, I'm sure you're you will talk about it as well. You know, some of these are our initial starts are quite high volume. And so. We're very encouraged overall around sort of the environment and obviously look forward to be able to continue to deliver on our results for the year. And given it's Q1, we obviously decided not to make any formal change. And we obviously aim to be able to continue to deliver on what we have said. And ideally, if the underlying volume environment continues above our own expectation, we will obviously update you. But at this point, I think it's proven to leave it as is.

Got it. That's helpful. And actually, it's a nice segue into my next question. Yogi, you highlighted a couple of sort of marquee wins in India over here, one with Unipath and the other with Krishna Diagnostics. How big is that opportunity for you over the medium term? And to what degree are you seeing cross-selling sort of kick in among your existing customers there? You highlighted Unipath being more HRD. Are they starting to adopt like some of the other tests as well? And same question for Krishna and your other existing customers.

Yes, thanks for that question, Tejas. First, we're very proud, right? Our tagline is democratizing data-driven medicine, and so we're very proud to help as well, indeed, market names, but in countries which are other than the U.S. and Europe. So as a reminder, we started in India signing Tata Memorial Hospital, so another market name, with whom we're working on multiple applications, but we started with them on solid tumor testing, And a bit similarly indeed with Unipass and Krishna Diagnostics. So these are customers that we have onboarded on the first application. So for one of them it has been on HRD testing, which is I think an application where now we can tell we have unique capabilities given the adoption we've been adding since a year time. But to your point, yes, we have as well upselling opportunities into these centers as we have in any. And so just to remind to everyone who is listening to us, our model is really a land and expand. So we penetrate an account most of the time with one application, such as HRD. And then once they start adopting our platform, this gives us the opportunity to expand beyond other applications. And so along those lines, beyond India, where we are actually very enthusiastic, We are as well very happy with the performance of some of the historical centers that we have recently expanded. DASA that we have been talking a lot about and now we've been announcing and celebrating the fact that over the last 12 months we've been helping them on doing 2,000 analyses on HRD. But as well another marquee name in Europe, maybe the most sophisticated cancer center in Europe, Institut Gustave Roussy, with whom now basically we work so that We help them across all the cancer applications they cover and for which they produce genomic data. So very interested and I would say very excited about the penetration in India. And I think this will give us ideas as well eventually to go in the future to other similar markets.

And I would just add, you know, one of the interesting dynamics is obviously we've seen adoption there both of central labs as well as academic medical centers. So I think that's quite encouraging for the market. We also recently did an event with our partner GE there, which I would say was quite good in terms of broad branding across quite a number of hospitals. Obviously, you know it's a very large country in terms of population. They've come a little bit later, I would say, in Asia-Pac to the sequencing game. But obviously, they're bringing huge populations. So even at lower price points, it's a really nice long-term opportunity for us. But again, one of many across the globe where we're seeing really nice adoption.

Got it. And then, Yogi, can you give us a quick update on the Agilent and QIAGEN partnerships? I mean, there's still sort of early days there, but just curious as to what you're seeing in terms of, you know, opening up the opportunity among new customers for you and so on.

Yes. Look, thanks, Tejas. Indeed, we announced these partnerships, which are important partnerships in the uh for our q4 results right in uh in uh in march april sorry in april um and uh since then we've been very nicely working with uh both companies we're revising uh the partnership yesterday in our executive team meeting so we are being able to create a number of uh opportunities with existing and new customers in the u.s in germany in particular by combining our platform with their consumables so we're very excited about those partnerships and we believe that To your point, this is early, but if we are successful in the first opportunities we work on together, that this should benefit as well to Sophia in being able to land new customers and continue to grow significantly the number of analyses quarter on quarter.

And I would just add, you know, the engagement up and down those organizations from the field all the way up through the C-suite has been great and really speaks, I think, to sort of the evolution of the market where obviously everyone realizes data and analytics or where we play is important. incredibly important piece of the puzzle, particularly as sequencing costs are coming down and volumes are likely to go up. And so it's great to have these very large and significant organizations, right, that have quite a significant commercial presence and great product portfolios recognize that we are a very strong partner to them and can help in sort of that market evolution.

Got it. And then one final one on the gross margin side for you, Ross. I mean, I think you did 73% non-gap in the quarter, nicely above your long-term goal there. So just curious as to any context you can share in terms of how you're thinking about those long-term targets. I mean, you probably don't want to raise them today on this call, but any color on that would be helpful.

Yes, thanks for calling this one, Tejas. This is a result of a lot of discipline. So maybe taking a step back, right? We've been able to grow year on year on constant currency and excluding COVID at 37%. While in the meantime, we've been basically able to improve our gross profit year on year by 47%, right? So I think definitely this highlights the discipline we added in being latter focused on the cost side. and basically being pretty selective, targeted in the investments we're making. Very proud with this gross margin, big improvement indeed. Just as a reminder, the 73% on a gross margin adjusted basis compared to 64% in Q1 2022. So kudos to our teams at SOFIA because they have been working very hard to be, I would say, even more efficient than we have ever been. And when it comes to the guidance, I will leave it to Ross.

Yeah, so obviously really impressed by the team's execution here. It's been a big focus, as you know, right, as we're trying to push toward profitability. There's a number of levers, right? You obviously have revenue growth, you have your incremental gross margin, and then you have OPEX controls. And so we've been trying to balance I think here we're really proud of the gross margin execution. You know, on the technology side, our partnership with Microsoft and our efforts around architecture I think are really playing off there. I think we still have more room to go per, you know, per sort of GB in terms of cost of hosting and cost of storage. But, you know, the other dynamic that's happening is there is a shift, and we'll talk about it I'm sure later, to larger panels. to whole genome sequencing. And so we're also on that path to kind of preparing for a bigger explosion of data. And so in that, you know, we are ensuring we are future-proofed in terms of where all of these different technologies are going. But frankly, some of this is just good old-fashioned, you know, rolling up your sleeves and saving money execution and labor absorption and and all of the things that drive gross margins in the software business and so i'm really proud as you mentioned we're not going to be changing the the long-term guide but i do think our obviously our confidence in sustaining let's say 70 plus gross margin continues to go up and uh obviously as a later date as we take a look at it we'll have a formal update for you on sort of the targets but certainly you would think relative to where a software business should operate, we're getting closer to what you would normally expect from a consumption-based business. And frankly, if you compare us to some of the players on the technology side, pure tech players, we're actually now above those levels. So I feel really good about our discipline and execution.

Got it. Thanks, guys. Appreciate the time. Thank you to Jeff.

The next question comes from Julia Quinn of J.P. Morgan. Please go ahead.

Hello, thank you for taking the questions. This is Marta on Julia. So I have two quick questions. Maybe you could discuss macro headwinds you experienced in the quarter. I know towards the end of the call you mentioned that FX has traded better, but what are you seeing perhaps in terms of customer funding constraints and are there any differences that you're seeing geographically? Thank you.

Yes, thank you, Marta.

So first, I would start highlighting that there is demand everywhere, right? So when it comes to the macro level, but in genomics, right? So from the recent visits I had personally in the U.S. and in Canada or in Europe, it's obvious that the demand is growing. And I would say from one out of two meetings we're doing, it's clear that there is an opportunity for Sophia to either expand the usage of the platform for a new application or otherwise land the platform with a new customer. So in that sense, I would say at the macro level, when it comes to clinical genomics, huge excitement. A lot of excitement as well on the biopharma side, where I would say there is a growing demand on getting access to tech capabilities that are combining multimodal offerings, so genomics, radiomics, and clinical in particular. But beyond that as well, a lot of excitement on being able to work with a taxpayer that can get access to real-time and real-world data through a network of 750 plus hospitals and labs in 70 countries. Beyond that, maybe on the macro level when it comes to, you know, the currencies and so on, I will leave a rough comment.

Yeah, so obviously for us, just given the ex-U.S. exposure. Currency movements, which I would say have been quite volatile, continue to pump around. I wouldn't say it's had an effect on demand. It's more on a reported basis. And so, again, just sort of something outside of our control. But certainly, as we think about sort of the remainder of the year, there's no reason for us to think, you know, you're going to see anything different than sort of what we saw in the recent period, which is strong underlying demand, but then quite a bit of noise on the reporting side. I will say, you know, at the customer level, we certainly see economic pressures, right, in certain parts of the world, you know, particularly in the U.S. for a number of the customers on the labor side. Labor markets for a lot of our folks are still quite tight, where some of the larger central lab players are obviously moving to cut costs. I would say in some of that, frankly, for us, it's a positive, right, whether that means they need us to help them with menu expansion or with cost savings or on the cog side. We've had a lot more of those conversations with a number of different players, but frankly, The underlying dynamic for the industry overall, at least as we can see, is still quite good. We're certainly, though, always prepared for changing the environment, right? And so we're in the field all the time. We obviously have a very large presence. And so we're small but our ears are to the street but we don't know much more in terms of how whatever happens over the remainder of this year economically will sort of play out. But I would say for us we're prepared for any environment and we're also thankfully in a business where the visibility remains quite good. So overall, you know, while not everything plays out exactly as you want, we tend to be able to also attempt to pull different levers to make sure we're hitting our results. And so we're going to obviously continue to attempt to do that for the remainder of this year.

Great. Thank you. And I guess the second question, more on the modeling front, how should we think about revenue and gross margin pacing for the rest of the year? Any color you can share there? Thank you.

Yes, thank you, Martha. So indeed, as well answered to Tejas, we're very proud about the post-marketing performance for Q1, which was 73% on an adjusted basis versus 64% in Q1 2022. This has been the result of definitely growing the business 30%, 37% year-on-year on constituency, excluding COVID versus Q1 2022. But this has been as well the result of a lot of focus on targeted investments. as well as continuous improvement on better controlling costs and in particular our indirect costs so again kudos to our teams i think this is a strong quarter and we need to recognize all the hard work of our sofia colleagues and beyond that uh ross i don't know if you want to give some color on how you see that evolving in the future right so obviously our business being consumption based

you know, it tends to follow a bit of what you would think of as the utilization cycle, which tends to be sort of building over the course of the year, a seasonal dip in 3Q, and then I would say a bit stronger results in the fourth quarter. And this is similar to what we've seen in the past. I would say this year, the one caveat I would give is just given some of the timing of some large contracts coming on, I would expect the third and fourth quarter to be even a bit stronger than is typical for us, just in terms of overall payments. But overall, I would say we'd follow, on an analysis basis, more of the normal sequencing of our year. gross margin side, we did call out about a $300,000 benefit from, you know, the cloud side in Q2 that will cease, sorry, in Q1 that will cease in Q2. So, you know, you will see now sort of, I would say, the new run rate of gross margins in the second quarter for us that we hope to obviously build off of, but certainly some degree of variability in either regional demand or in product demand can always influence that number. So, I'm not going to give you an exact amount for 2Q in the remainder of the year, but I would say you certainly want to pull out that $300,000 benefit as you think about Q2, and then again think about that being sort of the new rebasing for where we are as we now come out of this period where we spent quite a bit of energy on gross margin expansion.

That's very helpful. Thank you.

Thank you, Maritam.

The next question comes from Dan Brennan of TD Cowen.

Please go ahead.

Hey, good morning. This is Kyle on for Dan. Thanks for taking the questions here. Maybe starting on just the composition of the guidance, can you just remind us what is implied in your guide for volume and pricing this year? And can you provide any color on what the average revenue per platform customer was in 1Q? Thank you.

So, in terms of the guidance, right, and we're focused really on that 30% to 35% ex-COVID growth, I would say there we're still expecting volumes to be in the high teens, and then the remainder to obviously come from ASP, and I would say mix and farm up, right? So that sort of contribution today, there is really no change to that, even though obviously we had better than anticipated volume growth in the first quarter. Certainly, as we think about our business, again, it is consumption-based, and so there could be timing elements, which is, for us, why, again, given we're in Q1, we want to remain conservative on the outlook. But, again, we're constructive with how things have kind of developed in terms of the full-year picture. In terms of the other portion, I don't know, Yogi, if you have anything else you want to add there, but for me, you know, we generally feel quite confident with what we've communicated.

Got it. And then maybe just an update on the pharma partnerships. When do those become more meaningful? Is that something that happens, you know, way in the back half of this year and into 24? Or, you know, when should we see a notable contribution?

Yes, so as you remember, Kyle, we started our journey by first building our platform serving customers which are in the clinical space, right? And this is because we wanted to own a network of connected hospitals and labs that would be computing real-time, real-world data that are then being computed through the platform and our algorithms, and on which basis we're being paid as we compute the data. And as a second, we knew that when we would have been able to build such a network, this would be extremely valuable to help patients working with the biopharma companies pre- and post-approval of drugs. So this has been a more recent market to us, but a market where, as we've been, I would say, announcing a number of deals, we have been seeing great traction since a year now. And maybe I will call two of the announcements we made last year and beginning of this year with Boundless Bio and AstraZeneca. So these partnerships are being well executed, but as you know, unlike our business on the clinical side, which is consumption-based and purely, if you like, based on the volume of data we compute, these type of partnerships are sometimes based as well on specific type of milestones where we need to deliver some objectives. And we're basically getting access to the data might be a step where computing data might be another step. So what basically I'm telling you is that while indeed this opportunities and partnership we signed are being well executed, you should indeed consider that they will come rather towards the end of the year in terms of revenue recognition.

And as a quick reminder, particularly relative to the pharma customer base, right, you know, as you remember, as we've reported previously, you know, ARPU had been around, let's say, 100K roughly. And that's more indicative, I would say, of what a clinical customer would look like. On the pharma side, you know, it's multiples of that, right? And many times, significant seven-figure or eight-figure even contracts potentially over time. And so with that, obviously start date and sort of when they ramp is really important from a cadence perspective. And so you can imagine with the visibility we have on the clinical business, Obviously, there we feel quite good even though it's consumption based on how that will fall. On the far side, we're still early enough where, you know, even a month or two-month or three-month change in start date will have a pretty material impact quarter to quarter on sort of recognition. Again, overall, the contracts are quite visible. But, you know, in that, that's why I would say for this year with some of the ramping, you do see a little bit more recognition of revenue likely in the second half of this year. But that will continue in terms of some of those moving parts dependent on pharma starts. And again, there as we have more pharma contracts, it will start to average out. on the reported side. But remember, we don't also give analysis volume relative to pharma. And so, you typically will see that as many of that is around data development, you know, on the ASP side. And so, just from a modeling standpoint, keep that point in mind.

And I would add, Kyle, beyond the modeling side for the revenue recognition, which is definitely important and where I think you understand that we have already these opportunities in the bag and we're executing them. Even more maybe important to highlight that the demand on the pharma side continues to grow. I think the strategic offering of SOFIA along the 3D, which is from discovery to development to deployment all around data, is more and more understood. And at ASCO, we already have a lot of activities that are being planned with the top pharma company to discuss about potential deals.

Got it. Thank you, guys. Thank you, Kyle.

This concludes our question and answer session. I would like to turn the conference back over to Dr. Yergi Kambalong for any closing remarks.

Well, thank you all for joining us today. Q1 has been a very strong performance for Sophia, and I really would like to thank all the Sophians who have been working very hard and being very disciplined, very passionate, so that our performance could be such. Stay tuned. We're going to be at the ASCO conference in beginning of June in Chicago. Following that, we will be as well at the William Blair conference. And so we will be very eager to meet partners and investors while we are in these conferences. Thank you so much again and have a good day.