Good morning, everyone, and welcome to the SOPHiA GENETICS Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Jennifer Pottage, Head of Investor Relations. Ma'am, please go ahead.

Good morning and thank you for joining us on SOPHiA GENETICS Q3 fiscal 2022 earnings call. My name is Jennifer Pottage, and I'm the Head of Investor Relations at SOPHiA. Joining me today are Dr. Jurgi Camblong, our Co-Founder and Chief Executive Officer; Dr. Philippe Menu, our Chief Medical Officer; and Ross Muken, our Chief Financial Officer. Before we get started, I would like to remind you that management will be making statements during this call that are forward-looking within the scope of U.S. federal securities laws. These statements are based on management's current views and assumptions which are subject to material risks and uncertainties that could cause actual results or events to differ materially from those projected. Additional information regarding these risks and uncertainties are included in the section entitled cautionary statements regarding forward-looking statements and Exhibit 99.2 of the report on Form 6-K filed today with the SEC. Except as required by law, SOPHiA GENETICS disclaims any intention or obligation to update or revise any 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, November 8, 2022. Please note, both the replay of this call and a copy of the earnings release will be available on our Web site in the Investor Relations section. And now, I'll turn the call over to Jurgi. Jurgi?

Thank you, Jen, and hello, everyone. We appreciate you joining us on our call this morning. I'm pleased to share that our results for the third quarter remains strong with accelerating organic growth and improved operating leverage, demonstrating our commitment to sustainable growth despite a negative impact from foreign exchange rates on our reported results. Total revenue for the period grew 40% year-over-year on a constant currency basis, excluding the impact from COVID-related revenue. This shows that even in an environment as challenging as the one we're operating today, SOPHiA is still proving to be the preferred cloud-native analytics platform trusted by forward-thinking healthcare institutions around the block. The combination of our differentiated technology, robust commercial traction, improving operational discipline and a world-class global team continues to drive steady growth and demonstrates that we are well positioned to thrive under the economic scenarios that may lie ahead. We firmly believe we are in a great spot to grow as a leader in securing and supporting the precision medicine software market. I will start off today's call by reviewing our progress of the quarter as it relates to new customer adoption and platform consumption trends. Next, you will hear from our Chief Medical Officer, Dr. Philippe Menu, who will discuss updates regarding our money expansion strategy. After which, I will finish off the Q3 business highlights by discussing our increased traction in the biopharma market, an update with some of our strategic partnerships. And finally, Ross Muken, our Chief Financial Officer, will go through our financial results and full year outlook in more detail. But before I go on, I would like to thank those of you who joined us in person and virtually at our first Investor Day we hosted a little over a month ago in New York. It…

Thank you, Jurgi, and good morning to all of you. My name is Philippe Menu. I'm the Chief Medical Officer at SOPHiA GENETICS. On today's call, I will be discussing our menu expansion efforts and the progress we saw in this area in the third quarter. At SOPHiA, our teams are laser focused on driving innovation across our menu of offerings by providing users with frequent updates incorporating new features, new applications, new data modalities and new services. We feel great excitement around the pace of our product development as we accelerate towards the future generation of our solutions and technology. There are three specific efforts that I would like to highlight today with respect to our recent progress on the expansion of our menu of offerings. First, SOPHiA's HRD solution, which you heard Jurgi speak about earlier on the call; second, our groundbreaking new collaboration with Memorial Sloan Kettering Cancer Center; and third, SOPHiA CarePath, our latest module deployed on the SOPHiA DDM platform. Let's start with SOPHiA's HRD solution. Two weeks ago, we presented the first data set on the clinical validation of our CE-IVD HRD solution at the European Society of Gynaecological Oncology Congress. We shared robust data demonstrating that our decentralized solution is highly concordant with the centralized method, also highlighting the higher producibility of results generated by our technology in a decentralized setting. In addition, clinical validation of nearly 200 samples from the PAOLA-1 confirmatory clinical trial of olaparib in advanced ovarian cancer is very much in line on the progression-free survival navigation metric. This update provides clinical guidance for practitioners in Europe by demonstrating the ability to identify HRD positive ovarian cancer patients that could potentially benefit from first-line maintenance treatment with PARP inhibitors. These results are validating the high performance of our assay…

Thanks, Philippe. Now I'm going to dive into our advancing biopharma strategy. This represents a sizable and underpenetrated market opportunity for us. We are making excellent strides in enhancing our business within this important customer base and believe there is still significant market share that remains to be captured. Our focus continues to be on promoting our growing menu of offerings, which we believe uniquely positions us. At Investor Day, our Chief BioPharma Officer, Peter Casasanto, introduced SOPHiA's three Ds; data, development and deployment, which signifies our framework for growth in terms of our offerings to the biopharma market. Starting off with the first D, data. Our ability to capture real-world multimodal data in clinical routine in real time presents a unique value proposition to our biopharma customer base. When paired with the rich data sets coming from partners like MSK as well as biopharma's own clinical trial data, we can really help our customers to better understand the differences between a controlled environment, such as in a randomized clinical trial versus a real-world setting. Layering in our own proprietary AI technologies and algorithms allows us to take it a step further and begin to derive meaningful insights from all of these multimodal data, which can empower our customers to design better trials and stratify the right patient populations, even provide early signals of which patients are likely to respond or relapse when given a certain therapy. The second D, development, refers to our ability to partner alongside biopharma to develop new genomic solutions and/or predictive algorithms to select the right patients for the right drugs at the right time. This is the essence of precision medicine. At our Investor Day, we announced an exciting new partnership with Boundless Bio, a U.S.-based biotech company which develops innovative therapies targeting extrachromosomal…

Thank you, Jurgi. I will begin my remarks by going through the financial results in more detail before turning to guidance. We delivered steady results across the board in the third quarter. Total revenue grew approximately 12% year-over-year to $11.6 million in 2022 from $10.4 million in 2021 despite significant FX headwinds, which negatively impacted our growth by approximately 2,100 basis points due to continued material depreciation of the euro, Swiss franc, British pound and Turkish lira against the U.S. dollar in the period. Excluding the impact from COVID-related revenues, constant currency revenue growth was approximately 40% for the quarter. With respect to the sequential acceleration in core growth, biopharma revenue continued to ramp up impressively in the period. And as Jurgi mentioned, we remain very encouraged by underlying trends exhibiting this very strategic customer set. Our net dollar retention rate decreased to 109% in Q3 from 138% in the third quarter of 2021. As mentioned earlier, the decrease was primarily driven by the foreign exchange movement, revenue generated in key transactional currencies within the U.S. dollar. With respect to the annualized revenue churn rate, it remains slightly elevated at 6%, albeit I would note this is still within the range of what we would consider standard in the software industry. The total number of platform analysis remained flat at 62,000 in the third quarter. However, excluding COVID-related volumes, platform analysis grew approximately 11% in the period. Our somatic oncology portfolio, highlighted by triple digit growth in HRD and strong momentum in solid tumors, outperformed our inherited and rare disease portfolio. Geographically, we saw balanced growth from NORAM and notably strong contributions from LATAM and APAC, while EMEA underperformed mainly due to continued challenges in Turkey. Average revenue per platform customer increased to approximately $91,000 compared to approximately $89,000 for…

Thanks, Ross. In closing of today's call, the important takeaway is that our business has great momentum. We are growing and stably expanding our current pace of business across the world. Our SOPHiA DDM platform is unmatched in the market as we are pioneered in this unique category of software, which has clearly resonated deeply with the healthcare industry at large. We continue to see growing demand for our offerings, both in the clinical and biopharma market, as we remain focused on delivering value to the organizations who continue to put their trust in us. To that end, I would like to take a moment to thank the SOPHiAns for building, innovating and selling the offerings that have allowed us to be where we are today. We couldn't achieve our results without a collaborative effort and support of the entire SOPHiA family. Thank you again for joining us on our call today, and I look forward to seeing some of you in Arizona at the Credit Suisse Technology Conference later in the month. And with that, Ross, Philippe and I are happy to take your questions, and we will now turn back over to the operator. Operator, please open the line for questions.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]. And our first question comes from Tejas Savant from Morgan Stanley. Please go ahead with your question.

Hi. This is Neil [ph] on for Tejas. So to start, you mentioned the updated FDA guidance on clinical decision support software. Any implications as to the regulatory cost burden for CarePath as you look to enter the clinical market? And how should we be thinking about R&D spending trends in that context?

Yes. Thank you for the question, Neil. So indeed, right, as you may have seen the FDA has come with a new guidance when it comes to CDS and software medical device. And so today, there is no impact in our plan for CarePath, which I remind you is a clinical research tool, right, that we have primarily used in the context of the DEEP-Lung-IV effort and now deployed actually over the last months in two centers, so [indiscernible] as well as the other one being UMass, Massachusetts, and plan to basically have this used and deployed by end of the year in the 30 sites that are using -- that are being onboarded in our DEEP-Lung effort. So nothing for us in terms of change in our plans. But as we highlighted in the presentation of our results, we welcome in general more regulation in our space because we believe that that can make the market a bit bigger and the adoption of this type of digital technologies easier, in particular beyond academic centers one day in community hospitals.

And in terms of the budget, obviously you saw a bit of a step-up this quarter, at least year-on-year in R&D and that was a mix of some of the engineering capabilities we brought online as well as our DEEP-Lung related costs. Ultimately, we've made already significant investments on the regulatory side. And as you think about the plan on a longer term basis that we shared with you at the Analyst Day, that had contemplated obviously a number of these elements. And so I would not expect from a pure financial standpoint, at least at this point, there to be any material shift in our investment needs related to at least that piece of legislation, albeit again over time obviously as we move to the clinical market, there may be other elements we may need to consider with respect to CarePath.

Understood. That's very helpful. And then I had a few quick questions on the multiyear partnership with Microsoft. So as it relates to your cloud and data management costs, to frame the operational benefit, how should we think about the margin contribution year-over-year in '23 from this agreement? And will you still be utilizing other vendors for cloud services?

Yes. Thank you, Neil. So indeed, as you understood right, this partnership enables us to some extent as well to improve our overall cloud cost. But it goes beyond that and I think that's important to understand. So our platform runs in Azure, right. And so the more adoption of SOPHiA DDM, the better for Microsoft as well. So this partnership really goes beyond what you have in mind in terms of operating costs. So we have plans where we are working together on the commercial side so that we can jointly promote the offering of Azure and SOPHiA DDM in Azure, so primarily in the academic centers. We have as well plans to work with Microsoft and Azure on modernizing our architecture and in particular in the context of anything we're doing in the multimodal space. And last, we may as well work together on leveraging on some of their capabilities when it comes to natural language processing to be able to gather data scale and present them to our users in the academic centers when they are using CarePath for clinical research. So beyond that, Ross, maybe you want to give some color as well on the operational expenses side?

Right. So in terms of our cloud and compute costs, which are one of our largest buckets of cost overall, this obviously gives us pretty good leverage, frankly, both on the COGS and on the operating line. Because as you remember, a number of our R&D efforts as well are happening in the cloud, and so there are as well expenses there. And so this will give us some degrees of freedom on both of those points. But I would say more importantly, if you think about particularly some of the developments happening in the sequencing space and the anticipated uptick in volumes and the shift to larger panels like CGP or movement space like liquid biopsy or eventually even whole genome sequencing, this really puts us on a path given the importance of bioinformatics and most of those or all of those new and emerging applications. It puts us on a path to really be able to serve the global community effectively, both from a cost and execution perspective as these new types of applications really start to inflect and as the market continues to shift to where the amount of data production is going to be materially higher going forward. In terms of using multiple clouds, obviously, Microsoft is a tremendous partner for us. Azure is a market leader, right, particularly in the clinical space. And so we think the partnership of us and them is incredibly powerful. There are always certain countries or specific use cases where you may need to use another vendor. But as we see it at least over the next number of years with what we can do together with Microsoft, there's an incredible amount we can help the customer base with and transform healthcare data finally into the cloud.

Got it. Appreciate the helpful color. Thank you.

[Operator Instructions]. Our next question comes from Julia Qin from JPMorgan. Please go ahead with your question.

Hi. Thanks for taking the questions. So Jurgi, turning to HRD triple digit strength you highlighted in solid tumors [ph]. I was wondering if you could share a little bit more color. In the past, I believe you've said that the clinical part of the business is the upside. How did the trend go this quarter in terms of the clinical versus biopharma mix?

Yes. Thank you for the question, Julia. I will start and then I will leave Philippe as well to give more color given we have presented some data at ESGO, so the European Conference of Gynaecological Oncology. So indeed, so taking a step back, right, we have started basically developing our HRD capabilities about 18 months ago, as you have heard about it in our Investor Day, and it took us less than 18 months from developing these capabilities in our platform with deep learning algorithms to having these capabilities deployed today in over 30 centers around the world, including 10 countries, right. And we've announced today as well a few of those adopting this HRD technology beyond the Northern America and the U.S. So really, I think demonstrating that this solution can scale strongly around the world. And so along those lines, we've been focusing primarily on ovarian cancer so far, but we do see a benefit of potentially going beyond. And I will leave now Philippe to explain you what's happening in this space and how this market of HRD testing could grow probably beyond what we are doing today in ovarian cancer and how the data that we presented at ESGO make us really confident on our unique capabilities.

Thank you, Jurgi, and thank you, Julia, for your question. I think if we take a step back on HRD, we remain incredibly excited with the quality and the performance of the assay. As Jurgi mentioned and we discussed earlier in the call, we presented very strong data at ESGO a couple of weeks ago that showed very good concordance with the reference method. Also the fact that we can sustain that performance in a decentralized setting, which as you know is also a complexity that we can solve through our technology and our footprint. And then we were also showing that the clinical validation aspect on the progression-free survival metric was very much in line as well. So I think all of that is great. Having a decentralized solution really helps us position the market. We're very pleased with the market traction we've seen to date. Lots of interest, both on the clinical and the biopharma segment on HRD. And I think looking forward, we see very clear growth opportunities on three axes; one, capturing further market share in ovarian cancer; number two, going beyond ovarian cancer and tumors such as pancreatic, prostate and others; and then three, even bigger pool to be explored with synthetic lethality at large, because our solution looks at a lot of the pauses [ph] and all the consequences with the low pass whole-genome. We feel we're incredibly well positioned to support also biotech, more discovery-type initiatives there. So that's it. Thank you.

So along those lines and, Julia, as you heard from Philippe beyond the clinical research market, we indeed see now as well different ways of leverage on this technology with the biotech and biopharma prospects and customers.

That's great. And then in terms of the ASP, I know you have the Astra and the Ambry projects ramping in the second half of this year. So just curious if those ramps are progressing in line with your expectations and whether the ASP accretion is enough to offset the FX headwind that you guys are seeing?

Yes. So we're seeing great traction. So with Astra, we work mainly on the deployment, right, of the solution in Europe. But we have seen as well great adoption again of this HRD solution across the world with 30 centers and countries. And indeed, you're right in the fact that the ASP for HRD is, I would say, higher than our standard ASP. And so as you could expect, this would be for us -- I mean as well to increase our ASP over time. Although I would say in the meantime, as you know, right, in the market, we see as well some contraction now on, for example, sequencing price. So while this obviously will create a bigger market for us, we don't really know how the ASP will play. So today, our position is that probably with what's happening with sequencing costs going lower and data analytics becoming more and more important, like in the context of HRD, volume should go up. And our expectation is that the ASP should eventually stabilize. So at least in our models, we're not predicting ASP to go significantly up. I don't know, Ross, if you want to add some more color.

Yes. So in general, right, we're obviously seeing -- well, first, let me step back. There's two elements. There's price, right, which is sort of same-store ASP and then there's mix, right, which I would say is the bigger determinant here. We saw a pretty good ASP in the quarter despite a significant headwind on the FX side, right. So obviously, FX gets reflected on the ASP line. The mix shift to higher priced, higher ASP, more complex, more data robust applications continues, and that's what's driving much of that mix, right. Pure price remains still captured probably in the low single digits, right. So it's really a function of where the market is going. And to Jurgi's point, on a medium to long-term basis as volume growth, I would say, is likely to continue to accelerate given what's happening with sequencing costs, on a same-store basis, you probably won't see very much price expansion. In certain markets, you may actually see prices come down slightly, but the mix shift is going to higher and higher priced applications, right. So if you think about HRD or CGP or whole genome, liquid biopsy, et cetera, parts of our solid tumor application portfolio, that's where many of those applications are sizably above what our average ASP is today. And so as the growth of those continues to drive the overall mix shift of the business, you will see ASP trend favorably on a reported basis, albeit same-store maybe a bit less of a positive story depending on how things play out with the overall reimbursement scheme for NGS.

Great. Thanks.

Thank you.

[Operator Instructions]. Our next question comes from Kyle Boucher from Cowen. Please go ahead with your question.

Hi. Good morning, guys. It's Kyle on for Dan. Thanks for taking the questions. So if we think about '23 revenue growth at this juncture, is the 30% to 35% constant currency growth really sustainable into '23? And what are the factors that might take growth above this level? And as it stands right now, do you have any thoughts on FX for '23?

So obviously, we're not in a position in the third quarter to yet guide for 2023. Obviously, though we did provide at the Analyst Day, right, our medium-term look at revenue growth being in the range of 30% to 35%, similar to what we've seen this year. Obviously, we've also talked to you about a number of other positive factors that have benefited us, including our momentum on the pharma side. But I would say, in general, our business and the momentum we see in the business is quite good, right. So you should think of certainly that longer term range being what we see over the period. Obviously, there'll be some years where it'd be at the lower end of that range and some years above or at the upper end. And so ultimately, that's where we're expecting or modeling the business to land. And obviously, we're also doing that being mindful on investments. But overall, utilization is quite good. We noted a very strong October, so no change in terms of the macro's impact on the trajectory. And you can see the positive mix shift on ASPs, and we also called out in the script pharma being quite good and that's just starting to ramp, right. So we've got quite a lot buttressing us for next year in terms of continuing top line momentum. And obviously, as I've also spoken to in the past, our existing backlog, right, gives us a pretty good picture on forward revenue. And so our visibility into next year, I would say, overall is quite good. Now FX can move around at the moment. I would say there's probably a slight headwind to '23 just based on where currencies are as of 9/30. But again, with the unprecedented movements we're seeing in the market that could be quite different when we next update you. And so that's not one place where we're going to be able to nail it down in the current environment unfortunately.

Got it. And then, so in North America, I think by our map, growth slowed to maybe about 9% in 3Q and maybe we don't have the exact comp there. But could you just provide an update on North America traction? And is there any range of growth that we should be expecting in the region moving forward?

Thank you, Kyle. So the traction in North America, actually it's very, very good. And I've been spending quite some time myself as well doing customer visits lately here, and I was as well at the AMP conference last week in Phoenix. So we're very encouraged with what we see. So just taking a step back, right, we have announced this great partnership with MSK that will enable us to leverage on some of the data to collectively create an intelligent system to better serve other academic centers in the U.S. and around the world. We have been having great traction with Mayo Clinic as well, and we've announced as well the fact that they are now part of the DEEP-Lung-IV study. And we're overall seeing as well great traction with the centralized labs, especially when you consider the current macro economical constraints and the importance of being more sound when it comes to operational efficiency. And in that context, the importance of leveraging on industrialized platform such as the one of SOPHiA rather than reinventing the wheel, investing on their side with data scientists and tools, which are suboptimal, right. So really encouraged with what we see in Northern America, and we should expect indeed North America to continue to grow along the line of what we had shared in the past.

Got it. Thank you.

[Operator Instructions]. Our next question comes from Mark Massaro from BTIG. Please go ahead with your question.

Hi, guys. This is Vidyun on for Mark. Thanks for taking the questions. So at a high level, could you discuss how the competitive landscape is evolving maybe as a result of the increase in regulatory requirements? I know you mentioned at your Analyst Day that using directly sourced data is a key differentiator. So just curious if you run into any competitive dynamics in terms of price per analysis? Thanks.

Yes. Good morning, Vidyun, and thank you for your question. So definitively, we see a lot of positive trends, right. So one being in the, I would say, competitive landscape, the fact that you have now many more companies which are rolling out sequencers to target the clinical market and the fact that the sequencing cost is going lower, right. So with that, we expect definitively volumes to go up in the clinical market. And we expect as well that academic centers and central labs will need industrialized partner to compute their growing volumes in genomics. Beyond genomics, and I think probably this is what you refer to, right, you refer to what we have been doing as well with MSK in terms of data. So we understand that there is more and more eagerness from some academic centers indeed to pull data for research purposes, but as well to pull this data so that we can better serve our clients across the globe when it comes to decision-making, leveraging on this intelligence and basically making sure that the knowledge that has been gathered somewhere serve other patients indirectly in other centers.

Okay. Perfect. Thank you. Maybe just a quick housekeeping question. Could you just comment on cash runway areas of the business you're prioritizing, and remind us where your headcount stands? I know you also talked about long-term revenue targets out of your Analyst Day. So just any thoughts you have on a path to profitability given the expanded Microsoft partnership? Thanks.

Sure. So we've been speaking indeed on the Investor Day about our plans when it comes to path to profitability and cash runway. Maybe Ross, you want to reiterate what we said?

Yes. So on the topic, obviously we're happy to, despite accelerating organic growth, show a second quarter in a row of sequential decline in adjusted operating loss. So we're obviously very focused on balancing our ability to deliver on our top line commitments, which I highlighted before as well as moving toward profitability. I think the most important metric that I provided at the Analyst Day with respect to this discussion is really around incremental margins, right. And so I think there you can look at what we highlighted in terms of the drop down on future revenue and some of that also ties back to us being not particularly aggressive on the capitalization side versus most software businesses. And so as new revenue comes in, that drop down will be quite significant and that will buy down the overall loss as it converts to profit ultimately over time. And so we think that, again, if you sort of map it out, you can get a pretty good sense of when that crossover will occur. On the headcount side, and again we've talked about that being a predominance of our spend. Headcount remains roughly flattish at around 500. A lot of the work we're doing is aimed on the cost side and efficiency with our labor base and making sure we're very focused on what we're working on, making sure we're controlling a lot of our discretionary spend. And also, I would say on the R&D side, ensuring we've got the highest ROIC type projects that we're pushing forward. Additionally, what we're doing on the partner side also helps us with respect to leverage, right, whether that's through selling channels, whether that's through R&D and getting sponsorship for different investments or programs, et cetera. And so I would say we're very focused on -- and again, that sort of theme of growing sustainably, and I feel quite confident in our ability to deliver what we discussed at the Analyst Day.

Great. Thanks so much for taking the questions.

Thank you, Vidyun.

Ladies and gentlemen, with that we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Yes. Thank you all. So it was great pleasure of being with you today, and we're very much looking forward to update you in the future as we will be disclosing additional partnerships and contracts in the next months. And for the one that will be at the Credit Suisse Conference in Arizona at the end of the month, we will be very much looking forward to see you there. Have a good day.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.