SOPHiA GENETICS SA

Good day, everyone. My name is Jamie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SOFIA Genetics first quarter 2024 earnings conference call. At this time, all participants will be in a listen-only mode. Should you need assistance, please say no to 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 and 1 on your touchtone telephones. To withdraw your questions, you may press star and 2. Just a note, today's event is being recorded. At this time, I'd like to turn the floor over to Kellen Sanger, Sophia Genetics Head of Strategy and Investor Relations. You may begin.

Thank you, and good morning, everyone. Welcome to the Sophia Genetics first quarter 2024 earnings conference call. Joining me today to discuss the results are Dr. Yurgi Camblong, our co-founder and chief executive officer, and Ross Muecken, our chief financial officer and chief operating officer. I'd like to remind you that management will make statements during this call that are forward-looking statements within the meetings of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding risks, uncertainties, and factors that could cause results to differ appears in the press release Sophia Genetics issued today and in the documents and reports filed by Sophia Genetics from time to time with the Securities and Exchange Commission. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of IFRS and non-IFRS measures is included in today's earnings press release, which is available on our website. With that, I'll now turn the call over to Yurgi.

Thanks, Caelan, and good morning, everyone. I will start off the call today by providing an update on our progress in Q1, including detail on the performance of our clinical and biopharma business. I will then turn the call over to Ross, who will provide a closer look at our Q1 financials and our outlook for 2024. In Q1, performance of the business was marked by strong forward-looking indicators, such as bookings and new logos, but lighter than expected revenue. Total revenue for the quarter was $15.8 million, up 13% from $14 million in Q1 2023, and analysis volume was approximately 84,000, up 9% from the prior year period. The lighter-than-expected start for the year can be attributed to three primary drivers. First, as with any consumption-based business, we expect to see volatility from time to time. In this case, we saw slower-than-expected analysis volume in January across nearly all applications, but particularly within EMEA, which can likely be attributed to exaggerated seasonal consumption trends. Second, and as mentioned during our last earnings call, setup times for business have been slightly longer than expected as more and more customers adopt new sequencer types and adopt increasingly sophisticated applications which require them to spend a bit more time on proficiency testing and validation before they can begin implementing our platform. Third, the signing of one of our data projects in biopharma was unexpectedly delayed during the quarter, as we are seeing some elongated sales cycles for larger deals. Let me take a moment to address each of these items. On the first point, with respect to usage in January, I am pleased to report that consumption picked up considerably in March, and this momentum continues now into April and early May. For example, volume in March reached approximately 30,000 analyses, as compared to the approximately 84,000 analyses for the quarter. As a company that maintains close relationships with customers, Conversations from the field further indicates that the change in consumption was temporal. Additionally, many customers also reconfirmed their volume assumptions for the full year and will continue to monitor their usage closely. In addition to consumption returning to more normalized levels in March, bookings for new clinical business grew over 30% year-over-year in the quarter, nicely above our internal expectations. We also signed an impressive 27 new logos in Q1, up from 18 new logos in the prior year period. This marks a second consecutive quarter of strong new business growth, as the 27 new logos signed in Q1 join the 35 new logos signed in Q4 2023 to set up us nicely for a strong back-out ramp for the year. On the second point regarding longer than expected setup times, we have now fully ramped up a team of best-in-class subject matter experts with a deep experience in setting up and validating genomic workflows. These specialists, who we call our master team, are laser-focused on partnering with customers to help them complete their proficiency testing quicker so that they enter routine usage and begin generating revenue faster. This team is well prepared to manage the existing influx of new customers we have experienced over the last two quarters. In Q1, we have 90 new customers into routine usage, up from 14 in the prior year period, and we are excited to see this positive trend continue. On the final point regarding bioforma delays, we have developed an action plan to recover the revenue and capitalize on growing demand in bioforma during the back half of the year. While our BioPharma pipeline has more than doubled in the past year, the business is still in its nascent stages and the timing of BioPharma revenue remains difficult to predict. In conclusion, consumption has returned to more normalized levels and new business remains strong. We have taken actions to reduce setup times and accelerate new customers into routine usage. And last, we have a plan in place to make advance of the growing number of bioform opportunities we're seeing in the market. Given these factors, we remain confident in a strong back health ramp in 2024 and are reaffirming our revenue guidance for the year. Before moving on to a more robust update on our commercial business, I do want to highlight that we also importantly continue to manage cost well in the quarter, as adjusted operating loss improved 13% year-over-year to 14.1 million as compared to 16.2 million in Q1 2023. During the quarter, we remain obsessed with capital efficiency by continuing to take actions to optimize our operations and focus on increasingly high ROI projects. We also continue to work closely with partners such as Microsoft and NVIDIA to manage gross margins, and our adjusted gross margins remain above 70% during the quarter, despite the temporal softness in clinical volume and bioformat demand. We are proud of our cash management to date and therefore are also reiterating our full year guidance for 2024 with respect to our adjusted gross margins and adjusted operating loss and remain deeply focused on our goal of achieving profitability in the next two plus years with an acceptable level of cash cushion. As we progress in our path to profitability, revenue growth continues to be the primary driver towards this objective. At SOFIA, we grow our clinical revenue by landing new customers and expanding within those customers over time as they adopt more and more applications. As of March 31st, We have 463 core genomics customers who have used SOFIA DDM in the past 12 months to analyze cancers and rare diseases, up sequentially by 13 customers and up annually by 26 customers. Our focus will be continue to expand within these existing accounts by encouraging them to adopt more and more of our applications. Our proven ability to expand within existing customers is demonstrated by our continued high net dollar retention, which was 123% in Q1, up materially from 107% at the end of Q1 2023. Our ability to expand within existing customers also exemplifies the importance of landing new customers. As mentioned, Q1 was a strong quarter in terms of landing new customers with 27 new logos signed. For these customers, as well as the 35 new customers signed in Q4, our marks care team will be laser focused on reducing their time to routine so that they begin generating revenue faster. I will now take a moment to provide more detail on some of our major new land and expand achievements during Q1. And in doing so, we'll also touch upon three primary factors driving our growth in 2024. The U.S. market, our world-class solid tumor applications, and our new liquid biopsy offering. First, we continue to see competing momentum in the U.S. market. Analysis volume in the U.S. grew 34% in Q1 when compared to the prior year period, and revenue grew 27%. We continue to win major new logos in the U.S., and today I'm proud to announce the signing of Mayo Clinic, one of the top-ranked academic medical centers in the world, with adopting Sophia DDM's capabilities in oncology, starting with immune applications. Welcome, Mayo Clinic, to the Sophia community. Beyond the U.S., we achieved major recent wins in the Asia-Pacific market as well. In India, we continued our strong momentum from Q4 and signed a partnership with Strand Life Sciences in Bangalore, encompassing a broad-based collaboration that aims to bring Sophia DDM's oncology applications to patients across the country. Strand is an established partner of Biopharma Company in India, and we are excited to partner with them to improve patient health outcomes broadly. The addition of Strand, along with recently announced partners in India, such as Carkinos and Tata, positions us very well in a country which is not only the most populated in the world, but also developing very quickly in terms of precision medicine. Outside of India, I'm also proud to announce today for the first time that Samsung Medical Center in Seoul, South Korea, went live on Sophia DDM this month using our world-class Solitumor application for HRD. With the addition of Samsung Medical Center, we now work directly with four of the top five oncology hospitals in the world. This list now includes Samsung, Mayo Clinic, Gustave Rossi, and MSK. It's rewarding to see these leading healthcare institutions continue to recognize Sophia Debian's best-in-class analytical capabilities, as well as the platform's ability to save customers valuable time and resources. In LATAM, I'm excited to announce that in Mexico, we expanded our relationship with IMECAN, the Instituto Nacional de Medicina Genomica, one of Mexico's national institutes, and a top research center in the country. IMECAN, an existing customer of ours, is now adopting hereditary cancer applications in addition to the solid tumor applications they already use. IMECAN estimates these applications will be used to perform approximately 8,000 analyses per year. The last market that I will highlight is EMEA. Q1 performance in EMEA was representative of our company's performance overall, with forward-looking indicators such as bookings and new logos outperforming internal expectations, but revenue failing slightly short. Modest revenue growth in EMEA can be primarily attributed to exaggerated seasonal consumption trends in Italy, Spain, and France, as generally at lower consumption levels than expected. Based on the recent trends and customer discussions, we expect revenue performance to return to previously expected growth levels as consumption picks up and new business won in Q4 and Q1 is onboarded over the course of the year. On that note, I will take a moment to highlight some of our major new business wins in EMEA, which again were ahead of our internal expectations. First, in the UK, I am proud to announce today the signing of Synovis, a London-based lab providing services to the NHS, who will be adopting our new liquid biopsy application, MSK Access powered with Sophia DDM. Synovis provides lab services to SynLab as well as NHS institutions such as Guy's and St. Thomas, and King's College Hospital. Further, they joined the Royal Marston Hospital as yet another NHS-related provider to recently adopt Sophia Didiam. I'm excited to keep you updated on our progress with the NHS in the coming quarters. Speaking of major European health care institutions, I'm also proud of the recent announcement we made with UniLabs, one of the largest diagnostic labs in Europe, current lives on SOFIA DDM in April. UniLabs, which conducts more than 221 million tests annually, is the latest of many central labs to have adopted SOFIA DDM's world-class HRD application. Beyond the UK, I'm also excited to announce today that we deployed SOFIA DDM in a resounding three new countries in EMEA during Q1. This includes Romania, Norway, and our first customer in Africa in Nigeria. In Romania, Personal Genetics Romania, a major central lab located in Bucharest and member of the largest private medical network in Romania, recently adopted SOFIA-DDM world-class solid tumor and IM-ONC applications. In Norway, Stavanger University Hospital, one of Norway's largest hospitals, adopted our new liquid biopsy application, MSK-Access, powered with SOFIA-DDM. And lastly, Syndicate Bio, a precision medicine lab in Nigeria that aims to provide cancer testing to the over 1 million cancer patients in Africa each year, also adopted MSK access powered with Sophia Didiam. Syndicate Bio joins the Sophia Didiam community as part of our collaboration with MSK and AstraZeneca, which aims to advance health equity on a global scale by expanding access to cancer testing worldwide. Syndicate Bio marks the expansion of our footprint into Africa and represents yet another proof point of how the decentralized model sustainably enables local institutions to support their patients' needs. The deployment of MSK access powered with Sophia Didion in Africa also represents a significant breakthrough on a MSK initiative started more than 15 years ago to improve outcomes for people with cancer in low- and middle-income countries in sub-Saharan Africa. I am incredibly proud of this important step forward, our mission. All of the progress I've spoken about today with respect to Sophia DDM's liquid biopsy applications, and especially MSK access powered with Sophia DDM, has been incredibly impressive and even more so when you consider that the application's official commercial launch was only last week. For pre-launch activities, a resounding nine customers have already adopted MSK Access powered with SOFIA DDM. These institutions include BioReference and Tennessee Oncology in the US, OncoElix in Canada, DASA in Brazil, Syndicate Bio in Nigeria, Synovus in the UK, Stavanger University Hospital in Norway, Toulouse Oncopole in France, and SOFIVA Genomics in Taiwan. Customers are attracted to MSK-Access powered with SOFIA DDM for three primary reasons. First, the application leverages our proprietary cumin and pepper algorithms to accurately detect variants in blood samples with low input material and maintain the high level of accuracy of the MSK access test when deploying it in a decentralized manner. Second, we deploy a tumor-normal approach that removes biological false positives and enables customers to confidently identify relevant alterations by also saving them valuable time and resources. And third, MSK access powered with SOFIA DDM allows customers to retain ownership of their samples and data and therefore enables them to develop their own expertise and become lighthouses for precision medicine. As you can tell by the strong progress we have made pre-launch, this unique value prop are resonating with customers and our liquid biopsy offering is driving significant demand in the market. Such demand was evident during the liquid biopsy launch event that we hosted at our offices last week in Hall, Switzerland. The event included attendees from MSK, many current and potential MSK access adopters from around the world, and over 35 key opinion leaders across Europe, as well as our biopharma partners. Thanks to you, to those who join us. We're excited to work together to expand access to world-class cancer testing in liquid biopsy space. On that note, I want to highlight that the benefits of MSK access powered with SOFIA DDM not only resonates with clinical customers, but with our biopharma customers as well. Biopharma companies are mutually interested in expanding access to cancer testing worldwide and have demonstrated such by sponsoring the deployment of SOFIA DDM in several instances. More equitable and accurate diagnosis improves market access broadly. Additionally, more accessible cancer testing enables better identification of patients for clinical trials, which can accelerate the development cycles of targeted therapies. As announced previously, we recently entered a major collaboration with AstraZeneca to sponsor the deployment of MSK Access globally. The contract was finalized last month with a plan to sign numerous institutions across the globe to MSK Access in 2024. MSK Access powered with SOFIA DDM offers AstraZeneca a unique platform to accelerate drug deployment and development. For institutions signed as part of this collaboration, AstraZeneca will fund the setup programs and evidence generation activities. Apart from sponsored deployment of our platform, biopharma companies are also eager to gain access to the genomic and multimodal data computed by our platform, as well as the advanced multimodal algorithms that we've developed on the data, which are housed in SOFIA CURPAT. In particular, our multimodal data offering provides biopharma companies with critical insights for their phase 2 trial and market access needs, as our sophisticated algorithms can be used to identify specific characteristics of populations that are failing to respond to the current standards of care. Last quarter, I provided an update on a recent project with one of our biopharma partners, where Sophia Kirpat identified a signature in subpopulations of lung cancer patients, which could indicate different treatment effects of the drug. As you can imagine, this has the potential to be valuable to the biopharma customer for both market access and trial design needs. Beyond our learned capabilities, I'm excited to announce today that we recently signed our first breast cancer pilot. The project will follow a similar approach as taken for the lung project and will leverage Sophia Care Path multimodal factory to identify novel multimodal biomarkers and advance personalized treatment for stage 4 hormone-positive breast cancer patients. The collaboration will be a proof of concept for applying machine learning approaches to breast cancer patients, and that such approaches can identify multimodal predictive signatures of response to therapy. More to come on this topic in the future. Beyond lung and breast, we recently expanded our multimodal offering to kidney cancer as well. In Q1, we announced a publication in Nature's Precision Oncology Journal of a multi-year study between us and the French Kidney Cancer Research Network, URO-CSR, in which we analyzed 3,300 kidney patient cases. In doing so, we developed algorithms to predict post-op outcomes and validate immuno-oncology produced facing renal cell carcinoma. Going forward, we're excited to bring our multimodal analytics capabilities for lung, breast, and kidney cancer, among others, to even more biopharma companies across the globe and capitalize on the large pipeline we have in this area. Along the lines of fueling our future growth, I'm also proud today to make one final important announcement. In light of some of the recent market trends, we believe we are in a position of strength to be able to take advantage and accelerate our growth through organic and or inorganic initiatives. We have therefore entered into an agreement with perceptive advisors for up to $50 million in-depth financing to provide additional capital flexibility to pursue our growth strategy. I'm pleased to further reinforce our already strong balance sheet by providing us with increased buffer and flexibility on our path to profitability. And with that, I will now turn the call over to Ross, who will provide more details about our financial performance in Q1 and outlook for the rest of the year.