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 SOPHiA GENETICS First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note this 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 our results are Dr. Jurgi Camblong, our Co-Founder and Chief Executive Officer; and Ross Muken, 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 meanings 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 of 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 to 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 Jurgi.

Thanks, Kellen, and good morning, everyone. I will start off the call today by providing an update on our progress in Q1, including details on the performance of our clinical and biopharma businesses. 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, the 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 lower-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, and 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'm 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…

Thank you, Jurgi, and good morning, everyone. As Jurgi highlighted, Q1 featured mixed results as forward-looking indicators such as bookings were strong, but revenues for the quarter came in a touch lighter than expected. Total revenue for the first quarter of 2024 was $15.8 million compared to $14 million for the first quarter of 2023, representing year-over-year growth of 13%. Constant currency revenue growth was 12%. Platform analysis volume was approximately 84,000 for the first quarter of 2024 compared to approximately 77,000 for the first quarter of 2023. Year-over-year growth in analysis volume was 9% or 11% when excluding COVID-related volume. EMEA and Latin America experienced the softest growth during Q1, partially offset by significant strength in North America and Asia-Pacific, which grew at 44% and 39%, respectively. From an application standpoint, oncology outperformed rare and inherited disorders driven by strength in solid tumor testing. I will take a moment to provide a bit more detail behind the modestly lighter-than-expected volume and revenue for the quarter. I will also share a few more metrics and data points than we traditionally would on leading indicators in order to provide some context for our continued confidence in the underlying health of demand within the business. As Jurgi mentioned, this year got off to a lighter start than expected. As a business that is extra sensitive to working days and weeks, January of 2024 had holidays, which extended well into the first week, notably in EMEA. After speaking with many customers, we can surmise that this was at least partially to blame for the soft volumes at the start of the year. In addition, setup times associated with new business is slightly longer than expected as we see more customers adopting new sequencers and more sophisticated applications. We currently believe this may add…

Thank you, Ross. While our performance this quarter was mixed, we remain quite optimistic about our path forward. SOPHiA's success stands on our ability to expand access to data-driven medicines by using AI to deliver broadcast care to patients across the globe. 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, we are presenting at the RBC Healthcare Conference next Tuesday in New York City. 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.

[Operator Instructions] Our first question today comes from Conor Noel McNamara from RBC Capital Markets.

Ross, thanks for some of the clarity on the quarterly results. But can you just talk a little bit more about the revenue rate this year and your confidence in hitting full-year guidance? How much is from trends you saw in March and April with existing customers? And how much impact are you expecting for your new logo wins, which have been very strong in the last 2 quarters?

Yes. Thank you, Conor. This is Jurgi. So first, as you may remember, most of the revenue we do in a given year is with customers we have signed in the past year. Now said that, this year, we expect a strong backout given the number of new logos we signed in Q4 2023 as well as in Q1 2024. So as we were highlighting in the call, in Q1 2024, we have signed 27 new logos. And in Q4 2023, we have signed 35 new logos. And this compares to a historical average of 17 to 18 new logos per part. So we expect from one side that the utilization continues to grow. We mentioned that we had a weak January for diverse reasons, that March was already much better, close to 30,000 analyses a month, and that we saw this trend in April. So in terms of utilization, we're very confident that this will continue to fuel our growth for the next quarters. Then we mentioned that the conversion from bookings to routine and utilization has been weaker than expected, although we knew that because of the new type of applications that are going to the routine being more sophisticated or new sequencers would take more time, but we have taken actions now and we have a full team of professional service that is executing the MaxCure. So we expect these delays not to be extended. And the last one, going back to the bookings, the very strong performance we had in bookings and the momentum we see in the market with, in particular, a specific type of applications like MSK Access is really highlighting that the second part of the year will be strong in terms of utilization and hence, revenue.

I was just going to say, and I would say on top of that if you think about what I noted in the script on reaction shipments, which is an indicator from our customers on forward utilization or forward analysis volume, that was running in the high 20s. And so I would say, again, the exit velocity of the quarter was quite good. When we had originally guided, we had already contemplated in the guidance a relatively back half weighting to the revenue forecast. I would say, excluding the volume weakness in January, Q1 played out generally as we had expected. Obviously, that seasonal weakness we saw was pretty pronounced. And so again, I think with the exit velocity and the comments that Jurgi shared on the forward-looking indicators, we feel good around sort of the continued ramp back of the business to more normalized growth rates. And again, Jurgi mentioned a number of other mitigation efforts. And so with that, we kept the guide.

All right. Very helpful. And just one question on testing on. Well, do you anticipate any impact on testing volumes as a result of the recently proposed LDT regulations by the FDA?

Yes. Thank you, Conor. So obviously, that's something that we and many others are following us closely. At SOPHiA, we have been always striving for high standards because we believe that this is what is required to create trust in our industry. And so we're very welcome, as we have said previously as well, what's happening in the U.S. It was similar in Europe with IVR. We believe that standardization is basically making the market bigger because it becomes more comprehensive for a broader audience and potentially a broader set of patients that will benefit from those technologies. To that, I would add that our customers in the U.S., which would be the first ones impacted, are large academic centers and large reference labs. And so definitively as well, institutions that are very well equipped with this new legislation and should benefit from this legislation with increased demand in terms of sample testing.

And Conor, we saw very strong volume growth in North America and particularly in the U.S., all quarter. So while we did see some of that seasonality in EMEA, the U.S. business and this was across all applications is actually quite healthy. So I think overall, you're not really seeing any change in behavior relative to the LDT legislation. As Jurgi mentioned, and I've been spending quite a lot of time with customers. I think there are still a lot of elements of that legislation that still need to be sort of sorted and decided and firmed. But ultimately, long term, we see this as a positive for us.

Our next question comes from Tejas Savant from Morgan Stanley.

This is Yuko on the call for TJ. For the lab setups that you have undertaken that involve sequencing platforms for emerging vendors. You indicated you take approximately 3 months longer, approximately what proportion of new logos are incorporating emerging sequencing platform? And do you expect this dynamic to be more pronounced in one region versus another?

Yes. and very good question. I would say the sample on our data today, it's not yet big enough to give you precise numbers. But definitively, while alumina sequencers are the dominating one, we see more people adopting other types of sequencing technologies. In particular, I would highlight MGI and Element, we hear as well a little bit more about PacBio's recent thing. And in terms of regions, I would say that maybe the U.S. is the one where, as far as of today, Illumina is still the one that is the preferred one. But in some other regions, we start seeing a little bit more competition. That said, again, our view is that this will make probably the market bigger and that it will be healthy basically competition between multiple vendors, and that ultimately, there will be more data to compute for us.

Great. And then a separate question. Following the new debt providing up to $50 million in financing, does M&A optionality come increasingly in focus for you? Could you remind us how do you decide what to build in-house versus to acquire? Y

Yes. Yuka, I'll start and then let maybe Ross recap a bit the specificities of the financing we've announced with Perceptive. So typically, at SOPHiA, we've been already, I would say, proven to be happy, if not eager to develop things with external capabilities. So we apply the principle of open innovation at different levels. Historically, we had acquired actually a company called Interactive Biosoftware who brought us a technology called Alamo and ended up being a very successful add-on module in our platform. This technology now is being used broadly across the globe and with very important names, a lot of market names, in particular in the U.S. that are using that. We had applied a similar strategy a couple of years ago as well when it comes to multimodality, where we had acquired technology from a very renowned mathematical institute in France on which we leveraged to build our multimodal offering. And for example, being able to make the partnership we had been talking about in the past with AstraZeneca and hopefully others beyond land in breast and prostate colon cancer. And then beyond that, as a last example, as being MSK Access, which was a technology that was in that case, developed by an academic center, and we embed it within our platform. So to answer directly to your question, there are some specific types of technologies that we want to develop ourselves, which are very much tech-related. So this will be, in particular, our microservices and our web interface, and then the algorithms. But beyond that, we are very eager to be able to accelerate our movement by acquiring potentially other companies that are enabling us to accelerate our journey in either a specific application or either in a specific market segment. So with that, Ross, I don't know if you want to give some more color regarding the debt financing.

Yes. So maybe just to sort of get at also the tongue of the question. I would say, first and foremost, we're obviously very focused on creating shareholder value and doing that in a way that is sustainable. And so to that degree, as we look at organic or inorganic initiatives, we're obviously in the current environment remaining very sensitive to dilution and certainly, our cash burn and our path to profitability. So anything we do will have to be consistent with our plan, and we're not going to deviate from the plan in terms of our pathway to generating cash flow and the business to becoming self-sustainable. So that's a big, I would say, limiter or parameter. We're also obviously seeking high ROI transactions. In the current environment where you have quite a number of businesses, I would say, that are struggling with access to capital. This is an environment for folks like us, particularly at the size of acquisition we're going to look at that, ultimately, I think we can create some pretty good value here for our shareholders within the construct of not changing our path to profitability. So again, I think for us, we're going to remain disciplined. We're very happy with our current existing level of R&D investment in pipeline. But to Jurgi's point, if we're able to find strategic entities that will enhance our road map and speed our time to market in certain areas and/or supplement our existing technologies to improve our customer offering, we will consider it. But again, remaining incredibly financially disciplined.

Our next question comes from comes from Dan Brennan from TD Cowen.

This is Kyle on for Dan. I hope you're feeling better. I had a clarifying question to start on the customer setups. You mentioned that this is -- some of them are taking a little bit longer than initially anticipated. Is that incremental to the comments you've sort of been giving over the last quarter? Or is this in line with how you're thinking spend for the past few months?

Yes. Thank you, Kyle. And yes, I do feel better. So no, it's in the same vein, I would say, as what we had thought last quarter, not going too much into the details, but like the type of new applications like MSK access required to do proficiency testing with more sophisticated samples. And in the context of the new FDA regulation, this becomes even more important. So these are the type of things that sometimes are delaying slightly the conversion. It's not like the technology is not ready. It's not like the platform. It's not easy to implement. It's more that on the customer side, and they need to be taken a little bit more by hand so that they can go through this proficiency testing on a more smooth mode.

Got it. And then just on the volume side, can you speak to which applications are doing the best and the strongest right now out of your whole menu?

Yes. So basically, I would say, almost all applications have been growing year-on-year. maybe to start with the ones that have grown the fastest still have been in solid tumor HRD testing, which has grown strong double digits. Overall, solid tumor grew strong double digits and Iman as well. So basically, everything which is thematic-related is growing the fastest. Ereditory cancer has grown, but strong single digits. While we expect this to grow further as there as well, we do see because of some market changes, consolidations that may benefit to us as some of our customers may get access to more samples and so basically increase the volume of utilization in SOPHiA DDM. And then [indiscernible] disorders has being weaker versus the others, and I would say liquid biopsy is still ready for us. So we don't see yet the volume of liquid biopsy given we just launched last week the MSK Access application. Despite that, this should be, I would say, the application family that will grow the quickest. First, as a reminder, we signed actually 13 total new customers recently on liquid biopsy and 9 specifically for MSK Access, including between Q4 2023 and Q1 2024 bioreference in the U.S., Tennessee Oncology in the U.S., Sanquin Canada, data in Brazil, Syndicate BioNiteria, SOPHiA GENETICS in Taiwan, Toluca in France and Stavanger in Norway. And our pipeline beyond these signings, which are not yet being implemented, Kalinin, has grown significantly and actually is a strong double-digit in million right now for liquid biopsy testing. I don't know Ross if you want to say anything else?

Yes. Maybe just to add, Kyle, on top of even the volume growth, if I look at Q1 bookings, and we don't always talk about bookings, but I think it's relevant this quarter just given the disconnect between the consumption we saw in the period versus the new business we saw coming online, which will benefit us later this year and into '25. It was incredibly balanced, both regionally as well as by application. So if I look at contributions in the quarter, it was pretty consistent across the board, even including rare and inherited. And I would say from a pipeline basis as well, if we look forward, obviously, Jurgi mentioned liquid biopsy, which is building considerably. But frankly, across the board, we're seeing a very healthy pipeline build across all of our major application sets. So again, I think while in the period, we saw some bumpiness, particularly in January across the board from an application perspective, it's quite balanced and geographically balanced as well.

Our next question comes from Mark Massaro from BTIG.

This is Vidyun on for Mark. Just curious, you called out, I think that's a tougher macro for biopharma. How should we be thinking about that contribution throughout the year, either by revenue or in terms of customer count? And maybe just how we should be sizing that headwind?

Yes. Thank you, Vidyun. So indeed, one of the factors that we highlighted during our earnings was the biopharma and in particular, large deals. So I think as it has been highlighted by other companies in the space definitively in the biopharma as well, they had to take some actions on cost control. And so what we experienced is that contracting can be elongated due to complex MSAs and so on. So I would say, despite our offering on the data side, we have a pipeline that has been growing significantly over the last quarter. We see a catalyst beyond lung on the data offering with breast, where we announced a pilot with one of the biopharma companies we're working on. We announced new capabilities on Kinesso, we will be at ASCO, where we expect to generate quite high demand. And then beyond the data aspect, which can be indeed in this category of complex deals with biopharma that may require complex MSAs and take longer given that they touch as well R&D dollars beyond commercial dollars. We see MSK Access as a catalyst as well, in particular, for discovery efforts on the biopharma side, just as a reminder. So I think liquid biopsy has become extremely important to the biopharma in the development of their compounds. The MSK-access technology that we implemented within SOPHiA DDM has proven to be superior to the others in the market. One of the reasons being that we are comparing to more normal samples. And we believe that this will create a lot of demand from the biopharma side besides the budgeting constraints that I mentioned, which are more related to the data business. Ross, do you want to add anything?

Yes. So I would just say, look, we had a very strong 23% in biopharma. So we knew we were coming into this year, particularly in the first part of the year with a tough comp. I would say, in general, this remains a portion of our business, albeit small, that is quite volatile, and quite sizable in terms of on a per contract basis. If we have things move around in the clinical business, that could be $100,000 here or $200,000 there. In pharma, the deal sizes are much bigger. So if you miss by a quarter or 2, a start time and the deal is in the $1 million-plus range. It does move around your growth rates and your revenue cadence quite a bit. And so I would say, again, it's not totally unexpected given the nascent stage of the business, but we're certainly monitoring it. We're trying to do actions to mitigate. Certainly, we're in a place where I think we are committed to our forecast for the year, but certainly, we do need some elements on the biopharma side to come through to hit that forecast.

Perfect. Makes sense. And then just going back to Access. I was just curious, what does the early feedback look like on MSK-Access and just sizing the pipeline there? And could you also remind us what the ASP profile of that offering looks like?

Yes. So thank you very much, Vidyun. So far, the reactions are -- or the feedbacks are extremely positive on MSK Access. We hosted last week an event within our headquarters in Switzerland, where we had about 30 key opinion leaders coming from multiple institutions around the globe plus some biopharma partners. There are been initial data that are being presented by 2 of our customers, so on French and one German from mark institutions. Actually, the sensitivity and specificity so far are extremely high, Vidyun, so I would say the number of samples that have been tested are still modest but the sensitivity is really incredible. MSK themselves are really being bluffed and are helping us to advocate for the adoption of MSK Access in a decentralized way around the world, not only to serve patients but as well to accelerate through testing the recruitment of patients for clinical trials. In that sense, I would say the fact that today, in the context of the partnership we have with MSK and AstraZeneca, we've been able in the prelaunch of this application to sign 9 customers in almost all continents around the world. It's a very, very strong sign of the quality of the application. When it comes to the ASP, it's significantly much higher ASP because it's a solution that is more sophisticated. And so indirectly, our average ASP will benefit as well from that as we were getting traction and utilization, which is something we expect to happen again from Q3, Q4 of this year.

And ladies and gentlemen, with that, we're showing no additional questions. We'll end today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Yes. So thank you all for joining us today. Next week, we will be on Tuesday, New York at the RBC conference. To end, I would like to basically recap our Q1 performance. So we recognize that revenue was lighter than what we had expected, but business momentum is really good, both on the pipeline and bookings side. And something that we didn't highlight in the Q&A is that our cost performance and loss performance have significantly improved as well. And as Ross said, we continue to be committed to sustainable growth and reach our pass-through profitability in the next 2-plus years. With that, thank you very much, and have a good day.

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