Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the SOPHiA GENETICS Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Katherine Bailon, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining us on SOPHiA GENETICS Third Quarter Fiscal 2023 Earnings Call. My name is Katherine Bailon and I'm the Head of Investor Relations at SOPHiA GENETICS. Joining me today are Dr. Jurgi Camblong, our Co-Founder and Chief Executive Officer; and Ross Muken, 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 United States 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 the Form 6-K for the third quarter earnings release 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, November 7, 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 a 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 Jurgi.

Thank you, Katherine, and good morning, everyone. We appreciate you joining us on our call today. I am pleased to share that our third quarter results came in strong with revenue for the quarter growing 37% year-over-year on a constant currency ex-COVID basis. Moreover, we achieved this growth while delivering meaningful expense reductions from the prior year period. Our operating loss on an adjusted basis was $11.8 million, an improvement of $7.5 million or 39% from the third quarter of 2022, an improvement of $2.8 million or 19% from the prior quarter. On today's call, I will start by reviewing our progress in the third quarter as it relates to our business execution and the continued growth of our SOPHiA DDM platform. I will then turn it to Ross Muken, our Chief Financial Officer and Chief Operating Officer, to share our financial results for the period in more detail followed by our outlook for 2023. We will then end by taking your questions. Let me start with a review of the third quarter highlights and the execution of our business strategy overall. At SOPHiA GENETICS, we are focused on driving the adoption of our SOPHiA DDM platform. SOPHiA DDM is a cloud based software-as-a-service platform that health care institutions analyze and generate insights from patient data. SOPHiA DDM applies artificial intelligence to complex patient data, including genomics and radiomic data to help customers identify valuable patient insights. Our platform provides insights on a wide range of diseases with applications spanning across oncology and rare inherited disorders. A key attribute of SOPHiA DDM platform is that we leverage our network of connected customers to create flywheel effect. As more customers use our platform to generate patient insights, the more powerful our insights become for the next patient. Customers who use SOPHiA…

Thank you, Jurgi, and good morning, everyone. I'm pleased to share that despite the challenging macro environment, SOPHiA GENETICS delivered robust performance in the third quarter continuing our commitment to sustainable growth. Turning to the financials. Total revenue for the third quarter of 2023 was $16.3 million compared to $11.6 million for the third quarter of 2022 representing year-over-year growth of 40%. Constant currency revenue growth was 33% and constant currency revenue growth excluding COVID-19 related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 79,784 for the third quarter of 2023 compared to 62,276 for the third quarter of 2022. The 28% 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 analysis grew a healthy 36% year-over-year in the period. Core genomic customers were 431 as of September 30, 2023, up from 424 in the prior year period, but down sequentially by 3 customers. This is primarily the result of a continued decline in COVID-only customers. Core genomic customer count included 14 new routine customers in the quarter. Annualized revenue churn rate was 3% during the third quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 127%. Constant currency net dollar retention excluding COVID-related revenue was 126%. Strong NDR and a healthy level of backlog continued to provide us with a high level of revenue visibility going forward. Gross profit for the third quarter of 2023 was $11.3 million compared to gross profit of $7.3 million in the third quarter of 2022 representing year-over-year growth of 55%. Gross margin was 69% for the third quarter of 2023 compared with 63% for the third…

Thank you, Ross. We are proud of our performance, which we believe reflects our continued ability to execute on our vision and the opportunity ahead. SOPHiA 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 shareholder 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, later this month we are attending the Evercore Healthcare Conference in Miami. I look forward to continuing to update you on SOPHiA's future success of democratizing data-driven medicine. With that, operator, you may now open the line to the questions.

[Operator Instructions] Your first question comes from the line of Tejas Savant with Morgan Stanley.

This is Yuko on the call for Tejas. Could you provide more color on the BioReference Lab collaboration? How quickly could it scale and how meaningful could it be in terms of economics to SOPHiA?

Yuko, thank you for your questions. So before we go to the specifics on BioReference, I would like to remind people that recently we signed an important Memorandum of Understanding partnership with Memorial Sloan Kettering and AstraZeneca to basically support decentralization of liquid biopsy testing and comprehensive genomic profiling testing through the usage of SOPHiA DDM and ultimately give equal access to proper patient diagnosis around the world, including in the U.S., right? And so in that regard, indeed we are having a lot of traction, a lot of demand on MSK-ACCESS. And I will let Ross give you some more color on the announcement of today with BioReference Lab.

So obviously, as you all know, they are one of the largest central and reference laboratories in the U.S. and they have a great presence in the oncology field and one particularly amongst community oncology where we historically have not played necessarily. So this is a tremendous partnership for us. They're a great party to be able to serve their communities with this fantastic application. And for us, it's also really nice validation right of our ability to be able to scale up to other large central and reference laboratories similar to what we've done in other parts of the world as we've spoken about historically. So unfortunately, I'm not going to give you specifics on the economics. But as you well know, they have very large patient reach particularly in a number of key geographies like New York and Texas and Florida. And so we would anticipate this being a really nice contributor later in 2024 and into 2025. And again one of, hopefully, several updates we'll have for you on the early access program for MSK-ACCESS, which today is garnering quite a lot of interest. And as Jurgi mentioned, with our partnership or MOU as well with MSK and AstraZeneca, I think that will further help on that adoption and really drive access and awareness across the globe with respect to this really unique application.

Great. And then also as a separate follow-up question. With interim for DEEP-Lung-IV study readout expected before year-end here, what metrics would be provided to demonstrate model's predictive ability and what do you think is the bar that you must meet to see strong adoption?

So to start with, Yuko, DEEP-Lung-IV study was for us a means to do multiple things and first was to build multimodal capabilities in SOPHiA DDM, right, through the CarePath module. So in that regard, now this has been extremely successful and we have been able to deploy in the context of DEEP-LUNG CarePath in 30 centers around the world. So that's something that is extremely important. Second, as we would demonstrate that we had the ability to compute beyond genomics multimodal data in a real-world real-time setup. It was important to show that we're not only trusted by the hospitals to manage and compute their data, but as well to demonstrate there was a value for the biopharma. And you may remember that we had announced earlier this year a deal we had signed with AstraZeneca on the data side where we are leveraging on SOPHiA DDM CarePath and the data that we've gathered in the context of DEEP-Lung to help IG in their development efforts. And last, to your point, which was for us potential cherry on the top of the cake was to demonstrate that while you do so and you combine multiple sources of data, you may be able to anticipate response to expensive therapies like immunotherapy in a better way. So we are in that context today. So we are very proud to have deployed SOPHiA CarePath in 30 centers to have gathered data points, which are 200 clinical radiomics, genomics data points on 2,000 patients across those centers. And as it should be, now it's an Independent Data Monitoring Committee that is meeting up in December and is going to present the outcome of our predictive algorithms independently in January next year. And so I would say great is already what we have achieved because we have demonstrated there was value of onboarding 30 centers around the world on the multimodal capabilities. And when it comes to the predictability of the algorithms, we will speak about that at the time of the report from the Independent Data Monitoring Committee.

Got it. And you also noted that this predictive multimodal model can be applied to a variety of other cancer types. Do you have a plan to start larger studies to expand that utility of the model over time into other cancer indications? And are you viewing that expansion as a medium-term or a longer-term opportunity for you?

So indeed, Yuko, for many years we've invested in what we could call today our SOPHiA factory where we've been building algorithmic and workflows capabilities to be able to properly compute sophisticated, challenging genomic data, radiomic data, multimodal data. In the context of the multimodality, we wanted to demonstrate there was a value by doing that in lung cancer because lung cancer is the cancer that is killing I think most of the people around the world. We focus on non-small cell lung cancer and some unmet needs demonstrated the value of doing that. But our factory and algorithmic capabilities have already proven that similar outcomes could be expected in other cancer types. And in particular, I would highlight kidney cancer, glioblastoma and breast cancer where we had internal efforts. And indeed, one could expect next year that we speak about our multimodal capabilities beyond lung cancer.

Our next question comes from the line of Dan Brennan with TD Cowen.

This is Kyle on for Dan. I had a quick one on biopharma or pharma partnerships. When should we expect these will be broken out in the revenue build? Is this sort of taking longer than expected to become more meaningful revenue contributors? And how should we be thinking about that moving forward?

So before we get into the breakdown of the biopharma revenue, I would like to highlight again our strong performance for this quarter in the top line, right? This has been a 40% year-on-year growth with gross profit that as well improved by 55%. So I think this is awesome and tells a lot about the scalability of our technology and the demand for our technology in the market including the biopharma. Now regarding the biopharma, we I think have been always consistent that we wouldn't speak about the numbers until this reaches a certain scale. But I will let our CFO, Ross, comment.

So I think respectively in terms of disclosure, right, there's rules in IFRS around certain thresholds. So you can assume we haven't broken that threshold as a percentage for a given year not necessarily for a given quarter. So we're quite happy with biopharma performance this year. In the quarter it was up triple digits and it was a meaningful contributor sequentially as we had kind of guided to and expected. And so we'll obviously have to revisit sort of our revenue disclosures for next year assuming the current trajectory continues. But overall, we are quite happy with our execution and performance and it was a nice driver of some of the strong growth in the period. And I think if we look to next year, certainly our activity levels and the breadth of activity we have across our 3Ds of pharma remain quite robust and we look forward to being able to update you on that going forward. But overall, we're quite happy with biopharma's execution.

Got it. And then maybe it's a bit too early to say. But starting out in '24, should we be sort of in that 30% to 35% constant currency growth rate in line with your long-term range or could any of these new partnerships begin to drive upside to that sort of long-term range over the next few years?

So Kyle, as you well know, we have a very predictable model, right, on our forward-looking performance given the nature of our business in the clinical market, which is a consumption-based business where the net dollar retention of our customers is pretty good. And so this already gives us indeed a strong baseline probably above 30% to grow year-on-year. And as just you highlighted as we are now penetrating the biopharma segment, this gives us room to eventually grow at a faster pace.

Yes. And just to be clear, so again we're not giving any formalized guidance today for 2024. But I think in total, as Jurgi mentioned, given the high recurring nature of our business and our high levels of visibility which we've spoken about before, we obviously feel like we executed well this quarter and have executed well for this year. We sold strong new logos all of this year and our net dollar retention has been accelerating and so you can assume we're set up well as we enter next year. But obviously we're always mindful of the macro environment and all of the different changes that are happening and so we're trying to be vigilant. Hence, we did have some cost actions as well that we announced today. But I think in total, we're feeling quite good given the macro challenges around us and feel like we can continue to deliver on what we've committed to on a long-term basis. But obviously we'll update you more formally next year as we report our fourth quarter.

And we do have another question comes from the line of Mark Massaro with BTIG.

Congratulations on the top and bottom line beat in the quarter. It's also nice to see the addition of BioReference Labs. Could you just speak -- I think you guys alluded to it, but it sounds like they're initially going to use the MSK-ACCESS products for liquid biopsy. I guess can you just give us a sense for which types of applications BioReference might use over time? Is it the idea that they'll start with 1 application, but perhaps look at some of the other DDM applications as they start with the first one?

Mark, thank you for congratulating us as well on our performance. Indeed we both beat the top line and the bottom line. And on the bottom line, I think the performance we had with EUR 11.8 million loss this quarter versus EUR 19.3 million loss year-on-year in Q3 2022 demonstrates that definitively our technology can scale and that with the investments we've been doing over the last year so we can continue delivering strong results. On specifically BioReference, so as you know, our strategy is a land and expand model. So we like to land first our customer on initial application to build the experience of the platform and the trust and this opens up often other opportunities. I will let Ross give you a sense of what would come eventually later.

Mark, obviously you highlighted sort of what we clearly intend to do with BioReference and frankly, other large labs here in the U.S. And so they saw a really unique opportunity to be able to take on a market leading premier liquid biopsy capability in MSK-ACCESS and so that was sort of the initial talking point, right, with them around adoption. I think to the degree they get that up and running internally and we'll obviously work with them hand-in-hand to get that to market in some of their key geographies as quickly as possible. We will continue to discuss other applications within the platform. I think certainly, and I'm not speaking specific to BioReference, but in general with the conversations we're having with some of the large laboratories, we are seeing still quite a lot of interest in CGP so in the impact product as well as others that we support on our platform. And so we would expect that conversation to continue. We're also discussing with quite a number of players the ability to use our Ginger algorithm for HRD on top of their existing HRD. And I would say as well there's quite a lot of interest in our myeloid capabilities where we are market leading. And so again we're obviously very excited about this relationship. We view them as a great long-term partner and validation for us. And this quarter we had nearly 80% growth in the U.S. business in the NORAM business and obviously this will help set us up well for next year to continue that momentum.

Excellent. I know in the past you guys have talked about MRD, minimal residual disease. Can you perhaps provide an update on how you're thinking about potentially approaching the market, whether it's initially in hem or solid tumor? And if it is in hem, which application you're targeting and roughly when you think you could roll out?

Yes. A very good question, Mark. So as you know, MRD can indeed be many things, right? And in solid tumor testing, it can be quite similar as well to some liquid biopsy applications. So our main focus for next year will be in IMAC so in AML on MRD and we will be launching new capabilities before June next year that will enable us to further support our IMAC clients. Today, the number of clients that we support in IMAC is important. We have grown our business as well nicely the last quarter. And so we see the ability to further grow our impact and our revenue within those customers not only by enabling them to identify what is driving IMAC cancer. But beyond that as well, enabling them to follow those patients with MRD capabilities that they are being treated.

Excellent. Just maybe my final question. How are you guys thinking about the FDA proposed rule about potentially stepping up oversight of LDTs? Do you view that as an opportunity or potentially a near-term cost? Do you think some of your applications might need to go through the FDA? And how are you thinking about any potential cost or opportunities to your business?

So of course that's something that we are following, to some extent quite similar as well to what have been done in Europe with IVDR, Hence, the importance of adding solutions which are compatible with these requirements. In our case, it means having solutions under design control. So we see that rather as an opportunity. We've always said that our platform would help scale the industry of precision medicine, industrializing data computing and we believe that the recent questions, announcements and decisions are well in line with our strategy.

There are no further questions at this time. Mr. Camblong, I turn the call back over to you.

So thank you all for participating to our earnings. I would like to thank all the SOPHiAns as well for their hard work, commitment and passion in impacting around the world while delivering excellent technologies to hospitals and to biopharma customers. And with that, a good highlight to leave our investor community reminding you that we will be soon at the Evercore Healthcare Conference in Miami. Have a good day.

This concludes today's conference call. You may now disconnect.