SOPHiA GENETICS SA

Thank you and good morning everyone.

Welcome to the Sophia Genetics second quarter 2024 earnings conference call. Joining me today to discuss the results are Dr. Yergi Kambon, our co-founder and chief executive officer, and Ross Mukin, our chief financial 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 meaning 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 these 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 Jurgis.

Thanks, Kellen, and good morning, everyone. In Q2, we delivered another quarter of strong forward-looking indicators and continued bottom-line improvements, despite facing macro challenges which have temporarily softened revenue growth. I will start the call by discussing the challenges we faced and a few of the growth initiatives we accelerated to offset these headwinds. Next, I will highlight how this initiative has positioned us well to re-accelerate growth by later this year. Last, I will provide a brief update on our path to adjusted operating profitability, which remains on track as we manage costs well and improve our bottom line. I will then turn the call over to Ross, who will give you a closer look at our Q2 financials, our updated outlook for 2024, and additional details regarding our path to profitability. In Q2, revenue came in below expectations. The two major drivers were challenges related to biopharma and EMEA. Both of these challenges, which we highlighted in our Q1 earnings call, ended up being more pronounced than originally anticipated, but we are confident that they are temporary in nature. I will now take a moment to discuss each challenge. and a few of the actions we have taken to offset these headwinds and reaccelerate growth. Starting with BioPharma, we continue to face a macro environment in which budget constraints have made the signing of large contracts difficult and caused safe cycles to elongate. In order to offset these challenges, we have accelerated a few of our planned growth initiatives. First, we restructured the bioforma business by separating data and diagnostics offerings. Our data offering leverages on the large amounts of molecular data generated by our genomic business and the multimodal data computed by our platform to provide AI-powered insights to life science companies in the areas of drug discovery and development. Our diagnostics offerings leverages our broad network and real-time feeds to help biopharma companies with clinical trial matching and market access. By separating this biopharma data and diagnostic offerings and appointing new leaders to each business, we are now better aligned to the needs of our customers and are confident that we will be able to go to market more effectively. The second action we took was to refocus biopharma sales efforts to target smaller, more repeatable business as opposed to hunting large contracts. This approach caters to our buyers and allows us to avoid the lengthy approval and procurement processes required by larger deals. In the past, we've had success with this approach on projects like Bandas Bio, and more recently with the breast cancer study sponsored by AstraZeneca. I'm happy to say that these actions are driving more interest than ever, as our current pipeline for biopharma remains robust and is increasingly diversified. Our leaders for data and diagnostics are laser-focused on closing the deals in the pipeline and returning our biopharma business to the high growth levels we saw in 2023. The second challenge we faced in Q2 was an expected softness in EMEA, especially in France, Italy, and Spain. In the first half of 2024, two unexpected things happened in this market. First, we saw a slight moderation in the overall growth of patients being tested. From recessions with customers and strong bookings indicates that the trend is temporary and will correct itself in the medium term. Beyond the moderation in testing, we also experienced some unexpected churn and price pressure in France, Spain and Italy. These challenges specifically relate to establish applications like hereditary cancer and rare inherited disorders and not our newer applications. To offset these challenges, we took two immediate actions. First, we are bringing a more strategic approach to managing key high-volume accounts. Our sales reps are now working more closely with large customers to understand their long-term growth objectives and to map out the full picture of precision medicine needs across the institution. By leveraging our large menu of applications, the scale of our platform, and the volume-based pricing, we can be more successful with larger enterprises. In H2, we will invest in certain strategic accounts in EMEA in order to displace competition and win market share. Market share is critical to our thesis as we believe whoever has the largest network will win. The second action we took was reallocating resources towards our high-growth markets, such as the U.S., the U.K., Germany, the Middle East, and Asia-Pacific broadly. These decisions have already paid off as we signed major new customers in each of these regions this year. This quarter alone, we signed major new customers, such as Detroit Medical Center in the U.S., who is adopting Sophia Diem for E-Monk. the NHS North Bristol Trust in the UK, who is adopting Sophia DDM for HRD and MSK access, and Abu Dhabi's National Reference Lab in the UAE, who is one of the first customers to adopt MSK Impact powered with Sophia DDM. In addition to these immediate actions, I will also highlight that we are currently coming out of a heavy R&D cycle and are excited to launch a suite of new applications in the second half of 2024, as well as a major upgrade of our platform overall. Initial customer feedback and early pipeline data suggest that these investments are generating significant demand and have further differentiated our offering across the portfolio. I'm excited to update you more on these launches in a moment. Before I do so, I want to emphasize that despite moderating revenue growth in Q2, forward-looking indicators for our clinical business remain strong. In Q2, we delivered the third consecutive quarter of strong bookings with 20 new Sofia DDM customers signed. New business growth was driven by solid tumor application and the new liquid biopsy application, MSK Access. I'm proud of the success we have achieved so far with MSK Access, an application that has quickly drawn significant demand with pipeline in the double digit mediums. From a regional perspective, 11 of the 20 new customers signed during the quarter came from Yemye. This indicates that our strategy of refocusing land efforts to high growth markets such as the UK, Germany and the Middle East is working. Further, it gives us conviction that macro trends and moderation in growth in Yemye is temporary and will correct over the medium term. Despite our recent success with new business wins, I want to take a moment to remind everyone about the cadence in which new signings become revenue in our business. When a new customer signs for Sophia DDM, it typically takes them about nine months to begin generating revenue. This is because all institutions have to complete proficiency testing and receive accreditation before they can serve patients in routine. As highlighted during past learning call, the nine months sometimes becomes longer if the application they are adopting is more sophisticated. like MSK access. After completing implementation, it can take another three to six months for the account to ramp up to full volume and revenue. This means that new business one in Q2, Q1, and even some of the signings from Q4 2023 will not enter routine usage until late in Q4 or early 2025. As we approach the second half of the year, we remain laser-focused on getting new customers into Routine as quickly as possible. Our newly launched MaxCur team is dedicated to expanding customers from signature to revenue. In Q2, they moved 17 new customers to Routine, which is a nice step up from the 13 customers added into Routine in the same period a year ago. One key to landing new customers and expanding within them over time is to continue offering a comprehensive and compelling menu of offerings. On that note, I would like to highlight a few recent product launches and give a brief update on what's to come for the rest of 2024. I'm excited to announce that in Q2, we launched a new application in the InMong space, which measures minimal residual disease, or MRD, for acute myeloid leukemia. This is an important application for both biopharma and clinical customers. During the quarter, we also announced a collaboration with Microsoft and NVIDIA to develop a scalable wall genome sequencing application on SOFIA DDM by the end of the year. In the past, NVIDIA has named us one of the leading companies using AI to drive transformative changes in healthcare. We're excited to continue our work with these partners to accelerate adoption of data-driven medicine globally. Looking ahead to the rest of 2024, we're also excited to launch MSK Impact, powered with Sophia DDM, the decentralized solid tumor profiling counterpart to Memorial Sun Kettering's liquid biopsy application, MSK Access. I'm proud to announce today that we have already signed two customers to MSK Impact pre-launch, including Sophia Vagenomics in Taiwan and Abu Dhabi's National Reference Lab in the UAE. Looking ahead to the second half of the year and into 2025, MSK Impact will be a key growth driver as we pair it with MSK Access in order to win both liquid biopsy and solutumor testing business at institutions across the globe. Beyond expanding our menu of applications, I'm also proud to announce today that we are launching a full modernization of Sophia DDM later this year. We'll be moving the platform from Java to web technology and microservices. This upgrade not only creates better experience for customers, but it also enables us to compute data more efficiently and launch new applications more quickly. As we come out of this cycle of heavy R&D investment, we are confident that these efforts will continue to differentiate our platform in new and established markets and enable us to better serve our clients in both clinical and biopharmacology. In founding SOFIA 13 years ago, I'm exceptionally proud of the impact we've made. Since the beginning, we envisioned a future in which a cloud-based analytics platform would break data silos and enable healthcare institutions to compute and analyze multimodal data. We also believe that developing proprietary AI algorithms to provide insights on this data would power the future of patient care. Further, we never compromise on our conviction that a decentralized model is the most sustainable approach to achieve this mission. Now, patients in over 70 countries across the globe benefit from our decentralized analytics platform, SophiaDVM. Our customers are able to produce highly accurate insights from multimodal data within the walls of their own institution with faster turnaround times and lower costs and while maintaining control over the data they produce. In this way, I am proud that Sophia Genetics has pioneered the data-driven medicine movement globally, and I am especially proud of the nearly 1.8 million genomic patient profiles that we have analyzed since inception. I am also proud of the commitment we have made to achieve our mission in a sustainable way. Our commitment to reach adjusted operating profitability within the next two years not only unlocks value for our shoulders, but it also ensures that we will be able to help patients for generations to come. Our ability to continue to improve our bottom line, including in a quarter as challenging as the current one, demonstrates our commitment to this objective. With that, I will now turn the call over to Ross. who will provide a closer look at our Q2 financials and 2024 outlook.