SOPHiA GENETICS SA Q1 FY2022 Earnings Call

Thank you for standing by, and welcome to the SOPHiA GENETICS First Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Jennifer Pottage, Head of Investor Relations.

Good morning, and thank you for joining us on SOPHiA GENETICS Q1 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; and Ross Muken, our Chief Financial Officer. Before we get started, I would like to remind you that management will make statements during the 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 Statement regarding forward-looking statements and Exhibit 99.2 of the report on Form 6-K filed 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, May 10, 2022. Please note, both the replay of this call as well as the earnings release and associated slides will be available on our website in the Investors section. And now I'll turn the call over to Jurgi.

Thank you, Jenn. Good morning, everyone. I'm happy to be here with you today to share the excellent performance SOPHiA delivered during Q1. As announced last month, we reached an incredible milestone. We now have over 1 million genomic profiles analyzed on the SOPHiA DDM platform, further strengthening our position as a leading cloud-native, knowledge sharing platform, connecting thousands of healthcare professionals worldwide. As one of the founders of SOPHiA, it brings me immense joy to reflect on the progress we have made. We have come a long way since 2011 from just a handful of people in a 10 square meter room with a vision to democratize data-driven medicine. While we're proud of this milestone, we are just getting started. To that end, I want to recognize the SOPHiA employees who continue to fuel our success every day, because without them, this would not have been possible. It is a privilege to be able to work with such talented individuals who care so deeply about what we are building and share a mutual passion for using the power of data analytics and predictive AI to transform the world of health care. On today's call, I will walk through our first quarter business highlights. And following, Ross will review the period’s financial results and business outlook. But before I go on, let me remind you of the six key pillars that continue to guide our long-term growth. They are: accelerating the expansion of our network through new customer adoption, increasing utilization within our existing customer base, expanding our menu of offerings, developing key partnerships and collaborations, leveraging our platform to drive further growth with biopharma and excelling operationally within SOPHiA. Now let's begin with the first pillar. We have had a solid start to 2022 with customer adoption and network expansion. Health care institutions all over the world are continuing to recognize the importance of using data and analytics to drive decision-making more than ever. It is important to reiterate that SOPHiA is a leading cloud-native platform of significant global size and scale that enables health care institutions to turn complex raw data into deep insights that can improve patient diagnosis and outcomes. The SOPHiA DDM platform is unmatched in the market and we are the first movers in this unique category of software, which has resonated deeply with the health care industry at large. Furthermore, our platform is optimally designed to support rapid growth and benefit from network effects. As we aggressively onboard more health care and licensed institutions to the SOPHiA network, more data is generated on the SOPHiA DDM platform, which ultimately leads to richer insights that can be generated and democratized to new institutions, incentivizing them to join our network as well. The platform improves and scales as more data is analyzed, which importantly translates to more patients benefiting from the practice of data-driven medicine over time. We continue to build long-lasting relationships with new customers to increase and diversify the platform's network. Looking at Q1's customer growth and global scale, we added nine net new logos. The strong momentum onboarding new customers globally across North America, Europe, Asia Pacific, and Latin America demonstrates our strong execution and the universal nature of our compelling offering. Moving to the next pillar of increasing utilization within our existing customer base, broadening and deepening our existing customer relationships is crucial as customers continue to benefit from the value of the SOPHiA DDM platform, their utilization increases. And how do we know we are providing real value to our customers? This is evidenced by our exceptional net dollar retention rate, which is a percentage of dollars retained across customers. Our annualized net dollar retention rate has exceeded 140% for the past two quarters consecutively, indicating that our customer base has been consistently expanding their business with us. Ross will get more into this later on during the call. Our sales strategy revolves around ensuring that new and existing customers see the full range of use cases that the SOPHiA DDM platform can provide. Cross-application consumption is a key to deriving mutual benefits between us and our customers, expanding key customers' wins into transformative long-term business relationships. During the quarter, we saw several exciting expansion deals, one of which was with a key long-standing customer, Moffitt Cancer Center in the U.S. who nearly tripled their consumption. Combined with the additional momentum we have seen across our key customers in the U.S., our North America revenue has nearly doubled. Additionally, we are in the midst of signing an expansion deal with another long-standing customer, Dasa, the largest medical diagnostic company in Latin America. Total recurring platform customers grew to 384 in the first quarter of this year, up from 345 customers in the first quarter of 2021. The total number of platform analyses increased to over 65,000 in the first quarter, up from 53,000 analyses in the first quarter of 2021, representing a growth rate of 23% year-over-year. It is clear consumption trends have continued to be strong despite challenging comparisons from the prior period due to COVID-related impacts. And now on to our third pillar of menu expansion. Nothing is more core to our mission than innovating the platform. We consistently provide users with new content and we are combining and analyzing data in more ways than ever before. Having a robust ecosystem is essential for delivering our platform vision, and we currently have the most exciting product roadmap in our company's history. Last quarter, we spoke a lot about SOPHiA's newly launching HRD Solution as well as the soon-to-be-deployed CarePath. The HRD Solution has already been adopted by an abundance of customers across the globe and is on track to be one of our best application launches in history. With respect to CarePath, we would note this key deployment is still on track for later this year. DEEP-Lung-IV, the observational clinical study that is validating the predictive model, has been progressing well as expected. Three additional sites, including Roswell Park Comprehensive Cancer Center in New York, have signed up to participate, bringing the total number of sites across seven countries to 10. Nearly 500 patients have already been recruited for the study to date, which is tremendous. We expect to update you on our preliminary findings at ASCO next month during our symposium with GE Healthcare. We hope to see many of you there. Speaking of which, this leads me into SOPHiA's next pillar of developing key partnerships and collaborations. At SOPHiA, we do not work alone. At our core, we are an enabler and a partner, which is indicative of the versatility of our platform. We're achieving momentum with our partners in enabling our shared customer base to interpret complex datasets and generate novel insights. GE Healthcare, for example, has been a fantastic partner so far. Our partnership has been going extremely well and we continue to see significant commercial traction in joint customer engagement. We are proud of our partnership with them and the trust they have put in our team and SOPHiA DDM platform to help accelerate future growth. We're excited about the opportunity to continue partnering with organizations leading the data transformation of health care as we leverage our combined capabilities to spark innovation. Next, I want to quickly touch on our pillar of strengthening SOPHiA's presence in the biopharma space. We continue to promote our growing menu of offerings, which we believe will uniquely position us. CarePath, for example, is a product we expect to support biopharma to ensure the right patients are selected for clinical trials. We're encouraged by recent discussions, and it is clear that our value proposition to biopharma companies continues to grow with the expanding scale of our multimodal data and continuously improving predictive algorithms. Last quarter we spoke about our partnership with AstraZeneca to expand access to in-house HRD testing across laboratories and institutions around the world. We're excited to collaborate with other biopharma partners regarding our capability to develop and deploy highly impactful solutions with a focus on patients and technology-forward approaches. And now on the final key pillar, which is excelling operationally within SOPHiA. One of our core strengths is operating as a unified team in everything that we do. SOPHiA continues to review its organic growth initiatives and M&A pipeline and is focused on opportunities that will enhance the capabilities of our robust platform. Over the longer term, we are confident in our ability to execute a targeted focus on scaling the business to position it well into the future. And with that, I will turn the call over to Ross to get into the numbers.

Thank you, Jurgi, and good morning, everyone. Q1 was yet another solid quarter of execution despite a challenging macro backdrop. But before I dive into the results, I would like to remind everyone that it's important to understand that we are not a traditional SaaS software model. SOPHiA employs a consumption-based business model, which means our reported revenue has a direct relationship with the consumption of our platform during the period. This means, unlike most SaaS models, we only recognize revenue if a customer uses our platform. For many customers, it takes time until they are at full capacity. The consumption-based model gives them the flexibility to consume what they need and want as they ramp up their operations. The obvious benefit of this model is that we can grow materially with our customers over time, as evidenced by our strong net dollar retention. Furthermore, we also have a very high level of visibility as our contracts tend to contain contractual minimums, and our churn remains impressively low. Overall, this should provide heightened confidence in our ability to sustain growth. The start of the year reflected strong consumption trends as Q1 revenue grew 21% year-over-year to $10.9 million despite FX headwinds, which negatively impacted our growth by approximately 850 basis points. Excluding the impact from COVID-related revenues, constant currency revenue growth was approximately 35% for the period. This constant currency performance was strong despite a tough macroeconomic environment compared to the prior year period. From a geographical standpoint, we experienced challenges in our Turkish market where devaluation of the Turkish lira and reimbursement uncertainty resulted in a low single-digit headwind to first quarter growth. On a positive note, our North American business continued to be a standout with revenues in the period nearly doubling relative to the prior year period. We remain incredibly encouraged by our momentum in North America and look forward to providing future updates on this important market. As Jurgi mentioned earlier, our net dollar retention remains above 140% on a trailing 12-month basis, and it's considered exceptional among top software and cloud peers. The stickiness of our customer base has served as a foundation for us to build upon as our customers continue to expand. Our annualized revenue churn remains approximately 3%. Again, this should provide confidence in the sustainability of the underlying momentum of our business. Platform analysis volumes increased to over 65,000 analyses in the first quarter of 2022 compared to approximately 53,000 analyses in the first quarter of 2021. Analysis volume grew 23% despite modest COVID-related headwinds of approximately 400 basis points. Average revenue per platform customer increased to $92,000 compared to $74,000 for the prior year period. Gross profit in the first quarter of 2022 was $6.7 million, an increase of 19% compared to a gross profit of $5.6 million in the first quarter of 2021. Gross margin was 62% in the first quarter of 2022 compared to 63% in the first quarter of 2021. Adjusted gross margin was 64% for the first quarter of 2022 compared to 63% in the prior year period. Of note, unfavorable movements in exchange rates negatively impacted gross margin by approximately 170 basis points in the quarter. Total operating expenses for the first quarter of 2022 were $31.7 million compared to $19.7 million in the first quarter of 2021 on an IFRS basis. Operating expenses were positively impacted by foreign exchange trends by approximately $1.3 million in the current period. R&D expenses for the first quarter of 2022 were $9.5 million, an increase from $6.2 million in the first quarter of 2021, which underscores our continued investment in technology and product development. As a reminder, the vast majority of our incremental spend here is related to people, primarily engineers and data scientists, and our investments will further expand our multimodal data capabilities versus the competition. Sales and marketing expenses for the first quarter were $7.9 million compared to $4.9 million in the first quarter of 2021. General and administrative expenses for the first quarter were $14.4 million compared to $8.6 million in the first quarter of 2021. Of note, a majority of the increase in expenditures is related to our scaling up as a public company. Operating loss in the first quarter of 2022 was $25 million compared to $14.1 million in the first quarter of 2021. Adjusted operating loss in the first quarter of 2022 was $21 million compared to $13.1 million in the first quarter of 2021. Net loss in the first quarter was $25.5 million or $0.40 per share compared to $12.7 million or $0.26 per share in the first quarter of 2021. Adjusted net loss in the first quarter of 2022 was $21.5 million or $0.34 per share compared to $11.7 million or $0.24 per share in the first quarter of 2021. Cash and cash equivalents were approximately $243.5 million as of March 31, 2022. Of note, we continue to be disciplined with respect to our growth investments and have put in place numerous internal initiatives in order to enhance productivity and efficiency with an eye toward maximizing our capital runway without sacrificing long-term growth objectives. We are committed to our shareholders to remain incredibly diligent in the current macro environment with respect to organic and inorganic investments. Before I turn to our outlook, given the global scope of our business, I wanted to highlight the impact that foreign currency exchange rates have on our reported financial results. We are sensitive to fluctuations in key FX rates for currencies we transact in against the U.S. dollar, particularly the euro, Turkish lira, and our functional currency, the Swiss franc. To that degree, fluctuations in the euro, lira, and franc against the dollar will continue to impact our reported results, including the revenue guidance we provided previously in January. Now turning to our updated view of guidance. The company maintains expectation of 30% to 35% constant currency revenue growth for 2022 remains unchanged. Our prior range representing nominal reported revenue growth of 27% to 33% had contemplated the negative impact on growth from FX of approximately 250 basis points. Based on the current macroeconomic trends, we now face a forecasted headwind to 2022 reported growth related to FX of approximately 600 basis points. At present, we are still comfortable with the low end of our prior guidance range of $51.5 million to $54 million on a reported basis for 2022. Despite the macroeconomic and FX-related challenges, we remain confident in our business as we continue to see very encouraging trends in our pipeline with respect to North America, biopharma and HRD-related opportunities, as well as exciting prospects amongst our partner ecosystem. Of note, our underlying revenue visibility remains very high with respect to our existing recurring platform customers that constitute a majority of our revenue. Our vision for SOPHiA's long-term future remains unchanged. We are a disruptive growth company with substantial potential, and our results demonstrate high-quality durable growth. SOPHiA is a leader in the sizable yet emerging market of data-driven medicine with the right platform, technology, people, and strategic partners to execute our ambitious plans. We are energized by the future more than ever as we start the new SOPHiA fiscal year. This concludes my remarks, so I will now pass it back over to Jurgi.

Thank you, Ross. We are very pleased with this quarter's performance and remain confident in the business momentum as we build an ever stronger SOPHiA in the remainder of 2022 and beyond. Before I close today's call, I am thrilled to announce that we are taking the first few steps in our ESG journey. At SOPHiA, we place patient care at the heart of all our decisions, and our success is deep-rooted in our core values and the positive impact we have across all levels of the organization. This is critical to our mission of creating a wider and more sustainable health care system. Our forthcoming impact report will provide a deeper look into SOPHiA's sustainability and performance in key priority areas and is expected to be available later this month on our website. We look forward to continuing to update you more on this front. Additionally, we're so excited to announce that we are hosting our first-ever Investor Day in New York City on September 20. We invite the investor community to attend in person to gain a better understanding of SOPHiA and hear the latest news, innovations, and long-term opportunities. If you would like to request an invitation, please email ir@sophiagenetics.com. And finally, we look forward to seeing some of you at the JPMorgan Technology, Media, and Communications Conference in Boston coming up in a few weeks. Thank you all again for joining us on our earnings call today. And with that, Ross and I are happy to take your questions, and we will turn it back over to the operator.

Thank you. [Operator Instructions] Our first question comes from the line of Dan Brennan of Cowen.

Maybe just to kick it off, given the macro in Q1, I'd just be interested to see how did the quarter play out when you think about versus your own expectations, kind of what came in maybe better, maybe where it was more challenged. Just kind of maybe walk us through a little bit how things played out given the difficult environment.

So, indeed, we acknowledge that the macro environment is challenging around the world for everyone. Despite that, I would say that given SOPHiA has a model where we are very much like a software company being paid on consumption, the results have been pretty good and we haven't seen any major surprise. So to give you some color, Dan, the growth has been pretty strong in North America where we basically nearly doubled the number of analyses that are being run on the platform. When it comes to disease areas, we have a consistent and solid growth across these areas, both solid tumor, onco-hematology, hereditary cancer, as well as inherited disorders. I would say maybe one nuance was that HRD capabilities that we launched early this year even grew further than the volumes that grew in the other areas. So all in all, despite the current macroeconomic environment, good results on our side, no impact from COVID. And of course, this means and I think your question also triggers that on how we are making use of our proceeds, right, in terms of further investments, Dan. And as you know, SOPHiA has always been pretty disciplined and diligent in using our proceeds. We don't invest in labs. We don't invest in CapEx. We are, again, a software business. So we continue to invest diligently in things where we see future growth, such as the U.S. and the biopharma market, as well as in a regulated environment where we believe that platforms like SOPHiA will benefit from a more regulated environment where ASP will probably be more favorable than what it is today.

And Dan, just to add a fine point. If you look at it in terms of where revenues landed versus our internal model, we were pretty much spot on on an organic basis for Q1 versus what we were looking for in the forecast. I would say moderate outperformance in HRD, which continues to build, and I think it will be one of our biggest product launches ever. I would say probably a little bit offset by Turkey, which was marginally worse than we were modeling. Notably, obviously, the lira has collapsed, but also you've seen some reimbursement pressure in Turkey. But aside from that, it's really about FX, right? That's sort of the main delta on a reported basis and obviously not an area where we can, at least in the immediate term, offset. But we still feel quite good about our ability to even mitigate some of those reported headwinds over the balance of the year.

And then maybe, Ross, I wanted to ask you, and you talked about something about the balance sheet and how you're going to be disciplined and things of that nature. Maybe could you just expand on it a bit? Like how do we think about the burn from here? How do we think about like in the future, there's more of a focus with the volatility and the broader sector coming under pressure about companies that could self-finance or extend their runway of cash? How do we think about that aspect for SOPHiA? And how far out do you think your current cash balance will last you?

I will let Ross give you some color on until when we have sufficient cash with the proceeds of the IPO. But when it comes to expenses and investments, again, as a reminder, we are a software company. So our investments are very much around people, right? Over the last two years, we made significant investments in scaling up our teams in terms of tech and science, in terms of regulatory and quality, in terms of finance, legal, and BD. Now we are scaling a little bit in the sales side because of what we experienced in the biopharma space as well as in the U.S. chemical market. So you shouldn't expect from us significantly more investments in the next years because our base infrastructure is already fit for purpose so that we can grow accordingly to our plan. But Ross, maybe you can give some more color on the cash side?

Yes. As we commented, Dan, last quarter, we obviously feel quite confident on the level of cash burn and the trajectory, allowing us to certainly have visibility into 2024. On that, I would say we have, you know, obviously, given the environment you noted, we have taken a very comprehensive look at sort of our investments. The reality is we have so much growth and much of it, again, we play in a much more established market than many of the new emerging players. And so we have quite visibility to a number of these opportunities. We'll continue to put investment behind areas where we will earn a very high return on invested capital. But ultimately, to Jurgi's point, if you think about the OpEx base that we've built up today, it could sustain a much larger company, right? And so we're making investments around some of the key initiatives Jurgi talked about. As revenue ramps at the rates we've talked about historically, and again, our aim is to grow organically in that 40% range year in and year out. I think we can certainly absorb quite a bit of that growth and drop down at pretty attractive incremental margins to be able to sustain, I would say, that cash potentially even longer. We also, I would say, have a number of efficiency initiatives that we're undergoing in the business. Through automation and systems and upgrades in certain areas, I think as well could allow for better cash preservation. Again, we're not going to change our strategy dramatically in this environment, just given the visible revenue opportunities that we see and what's in our pipeline. But I would say we are being as diligent and prudent with our capital as one can be and are very mindful of sort of the backdrop and making sure we are managing things for our shareholders effectively.

Just on North America, since I know that's an area where there's a tremendous amount of opportunity and you're getting some traction. Could you just walk through a little bit more color, anything on -- you mentioned Moffitt, just how do we think about the funnel in North America? What's kind of baked in? How do we think about the contribution this year and kind of what's the upside opportunity as we look over the next couple of years in North America, and I guess, particularly in the U.S.?

Probably as we went public, indeed, this was one of the questions we would receive from the investment community, right, how our model, which supports a decentralized world, would be compatible with the U.S. market, which is a bit more centralized. The numbers prove that we are compatible with this model, and we're growing quicker in North America than in the other regions. As you pointed out, Moffitt, indeed, has tripled the consumption on oncohematology over the last quarter. So we are very proud of it. We see as well great traction with other academic centers, such as UCSF. We signed as well some names that we can't disclose, which are not publicly disclosable. We see a lot of demand now from central labs, like we mentioned last quarter, Ambry Genetics, but we're having more conversations with really Tier 1 labs that are very well known in the U.S., where our menu offering and the fact that our platform is fully scalable could enable them to enter a new market, such as HRD, but also operationally be more effective to have better gross margins. So we're optimistic about our Northern American future performance, and to end, I would say that the sales pipeline is greater than ever in Northern America.

Maybe I'll sneak one more in. Just on biopharma, you have the asset relationship. I know that's something you've talked about that could become a more material driver broadly, but maybe it's more of a '22 or '23 event given the timetable at which these customers sign on. But just maybe you can just give us an update on what the funnel looks like in biopharma, how much we can expect it to contribute this year? And just what could drive a faster, I guess, inflection in that business?

Indeed, we mentioned AG. And as you can imagine, this is related to some extent to our HRD capabilities that might go beyond, and we will speak about this a lot at ASCO. I think this should give you a color, Dan, on why we start to be perceived by the biopharma industry as a kind of unique partner to leverage real-world, real-time data around the world. SOPHiA has proven to be the only one being able to standardize data. I think the pharma sector is becoming very interested in our position to be able to leverage data pre-approval, as well as post-approval.

And Dan, maybe just one reminder, right? So pharma for us tends to be much larger dollar revenue per customer, right? And so as those relationships ramp and it's factored in, obviously, to our guidance, that will account for some of the larger step-ups quarter-to-quarter over this year and into '23 than you would traditionally see from SOPHiA in our clinical business. And so just keep in mind, again, some of these deals can be quite sizable. Those step function changes tend to be bigger than what you would expect from us in the past with much of our clinical business. This is very visible for us, but it's a bit more step function than it is linear.

Our next question comes from Tejas Savant of Morgan Stanley.

Maybe just to follow up on that vein of thought, Ross, one for you on revenue phasing through the year. Can you just walk us through how you expect the FX dynamic and then some of this large contract phasing, perhaps even beyond AstraZeneca and AMRI to impact your revenue split between the first half of the year and the second half of the year? And then a related follow-up, what exactly are you assuming for the HRD offering? I know you mentioned it's off to a stronger-than-expected start. But would that be sort of upside to the low end of the guide or is that already included in your current outlook?

So I'll let Jurgi comment on his excitement for the HRD product and its demand on a global basis because I do think certainly there as it ramps, it's going to be a material driver of growth for us in the near to medium term. But as you think about the phasing over the course of the year, obviously, Q1 was noticeably impacted by FX. You'll see a similar or greater impact in Q2, and then that will begin to moderate in the back half. Remember in Q4 of last year is when the Turkish lira, in particular, collapsed. And so that will provide a fair amount of relief on a reported basis. That being said, we do have a number of these significant contracts coming online over the balance of the year. We also have quite a robust pipeline of net new business that's starting into what we would call routine when it's generating regular revenue daily. Q2 is going to be certainly a nice step up from Q1, but I would still expect, as I mentioned last quarter, and again, as I had said earlier to Dan's question, our organic forecast, obviously, we reiterated, but Q1 played out as we had expected on that basis. My comment from last quarter as well that the second half will continue to be a bigger contributor, that still holds true, and we have, I would say, increased visibility on some of those drivers. Maybe Jurgi, do you want to quickly just comment on HRD specifically and your sort of enthusiasm there?

Yes. I think HRD just has been probably one of our best historical launches. Today, we estimate the total addressable market to be over $1 billion. To give you some context, we said that our core business grew putting COVID-related volume aside, 27% quarter-on-quarter, and year-on-year from Q1 2021 to Q2 2022, 35% at the revenue level. Just to provide you some color, HRD, despite being launched only in Q1, grew basically twice faster. We are very optimistic about our compelling HRD offering. Today, importantly, you're probably aware that HRD testing is primarily used for ovarian cancer, but in the future, given the number of clinical trials that are ongoing, people expect this market to be significantly bigger as HRD testing may be used for prostate cancer, breast cancer, and pancreatic cancer as well. So there is a lot of excitement around that launch, Tejas. I think you should expect similar excitement when we deploy CarePath as well.

And then a couple of quick ones on just the macro backdrop here. Can you just walk us through -- I know you mentioned the expansion of the contracts with some of these larger cancer centers and traction with pharma. But as you think about sort of the long tail of the 1c, 2c customers, so to speak, is there any impact there from the inflationary environment or perhaps on budgets, particularly in Europe, just yet? Or are things essentially going along as you expected? And then on the labor side among hospitals or perhaps sort of shortfalls in screening volumes, how do those metrics trend relative to perhaps prior to the pandemic?

So just to be clear, when we talk about sort of the macro or the level of volatility, for the most part I'm talking about the impact on reported revenue, right, relative to FX. That’s really where if you look at what happened with the euro, the Swiss franc and with the lira in the quarter, on a reported basis we were challenged. On an organic basis, we're seeing no impact, frankly, from the macro, fortunately, even in Europe. I would say if you look at our net dollar retention, which should be the best sign of the underlying health of the broad business, that 140% is certainly world-class, right? Therefore, we feel quite good around the underlying environment. I would also say we are an entity that tends to provide as a technology enabler, efficiency, savings, improvement to almost all of our customers. In that, I would say we tend to be a help to them in the current backdrop. Certainly, finding individuals to operate sequencers, right, in certain parts of the world can be challenging. Given we typically work with Tier 1 academic medical centers all over the world, this is not the area where you are going to see material changes in purchasing or demand. If we look at some of those largest customers, we're going out 3, 4, 5 years on contracts with high levels of visibility at materially upgraded spend at historical levels. Again, I think it's quite a different business as a software business than many of the other companies within the broader universe. In that, our visibility levels again and the duration of our growth tend to be a lot more visible than for most.

Tejas, if I may just add two things. We are in an industry where volumes will continue to go up, right? There is no doubt that there will be more genomic testing and that combining other data modalities with genomics will become more and more important. Given we are being paid on consumption, that's good for us. The second point I would add is that because of the menu offering we've built over time and the scale of our platform, we have become almost irreplaceable for the big academic centers and even for some central labs. That's why I think, as we disclosed, the relationships we are building with Ambry and others recognize that it is better leveraging our industrial-scale technology and platform to work together rather than build the solutions by themselves.

And then one last one on me for margins. Last year, you guys had talked about sort of a benefit from compute costs from some of your cloud providers. As you lap those impacts, is there anything to be thinking about in terms of the gross margin trajectory through the year? To the extent you mentioned sort of people being really your biggest expense, can you walk us through some of the inflationary impacts here and the degree of pricing power that's embedded in your customer contracts?

Yes. Before Jurgi goes into some of the labor impacts and I can also cover our inflation protection, but ultimately, we tend to be pretty insulated. I think on the labor side, you should think about the fact we operate in a number of different countries like France where inflation pressures are not quite as dramatic. On that, I would say, relative to our operating spend, we've had, I would say, a more favorable mix than others. On the OpEx side overall, we'd been very targeted with where we put investments. We've been very mindful again of the backdrop, but we also do have quite a number of areas that Jurgi called out where there is significant opportunity where we either have contracts in hand or we've got a pathway to very attractive revenue upside. Again, our global business has made us a bit more protected than others. You can see on the OpEx side where we had a $1.3 million benefit from FX. On the gross margin side, the good thing about the cloud is it doesn't -- costs don't just start going down. It follows Moore's Law. Every year, there are new things we can do to drive expansion. We made some investments last year. We've got an entire now roadmap of investments for this year into next year. We did, again, in Q1 experience a bit of FX headwind on the gross margin side, and there isn't a lot we can do there to offset that. But on an underlying basis, we feel quite good about the trend, and we still feel confident in our ability long-term to reach a 70%-plus trajectory, which I think, given our business mix and having the level of software we have is quite healthy.

Yes, Tejas, regarding your question about inflation on labor costs, you're right. Details matter, and when we have been growing SOPHiA, we intentionally built our data sales teams in Switzerland and our tech teams in France, where we are quite uniquely positioned, if you like, to mitigate recruiting challenges. The other element I'd add is that, as our numbers indicate over the last 18 months, we've invested significantly in human capital because we had project demands from new partnerships, such as CarePath, to ensure compliance with regulated environments. Our human capital infrastructure is in place. Therefore, you shouldn't expect any significant impact in terms of the number of employees we should add into the company, neither in terms of the cost of labor.

Our next question comes from Julia Chen of JPMorgan.

So I wanted to follow up on the U.S. expansion. Obviously, you guys have shown very strong progress and you highlighted the volume ramp this year at core lab. I'm just wondering if you can talk a little more about the pipeline of additional customers, especially across central labs versus academic? And how much further acceleration do you expect to drive, especially with the menu expansion year?

Indeed, we are very pleased with the adoption we're seeing in the U.S. Volume has almost doubled year-on-year from Q1 2021 to Q1 2022, which highlights the fact that we are really compatible with the U.S. market. We have demonstrated strong compatibility with academic centers such as UCSF or Moffitt, where our business continues to grow and, as I mentioned to Dan, Moffitt's consumption has tripled on our platform. Beyond this, in central labs, we are having intense conversations now. We've talked about Ambry, and in the next months, you should expect us to speak about other Tier 1 central labs with whom we are elaborating development plans. HRD being key to that but should extend beyond. So we are very optimistic about what we see today, and we need to diligently work and build our sales team according to U.S. specificities.

As a follow-up, when we started to communicate around our strategy in North America, I think the theme of decentralization was at its heart. A lot of questions were raised around how we would penetrate more centralized elements in the U.S. I would say now, with our pipeline and some announcements we hope to make over the back half of the year and into 2023, we feel quite good about that thesis evolving to power up the top specialty and central labs in the U.S. That’s where most of our activity is in our pipeline right now based on a dollar basis and has been growing over the last quarters. The current environment where many entities are advancing and competition remains high means our value proposition is quite compelling.

And then on CarePath, that's launching later this year, could you maybe help us think about the revenue ramp and how much long-term potential it can generate?

The plan is already demonstrating the value of platform players supporting a decentralized world, allowing us to capture real-time and real-world data to help patients and serve as a platform for the biopharma industry. This is why we're so excited to present the initial results of the study at ASCO. We started the study, just as a reminder, in January this year. Since then, 19 sites across seven countries signed with us. Already 17 of these sites are being activated, and we've followed nearly 500 patients. The momentum is tremendous. As for how we monetize this, we will see. I think we have a variety of options, whether it be leveraging data, a model, or infrastructure with pharma. You will hear about these opportunities as we deploy capabilities.

Nothing is included in the '22 forecast related to CarePath, and to the degree it becomes material post-launch, we will have a better sense of the pipeline building. Right now, we're engaging with quite a number of institutions, but it’s too early to give any formal view on trajectory. However, we are quite excited about multiple ways to monetize this move, which is a substantial upgrade to our business strategy, shifting from an insights player to a true data player, which is a compelling proposition long-term.

And just a clarification since you have two fronts on the multi-model front, how does CarePath overlap or differentiate versus the multi-model CarePath that you're also co-developing with GE?

What we are doing is leveraging our platform and CarePath capabilities to break data silos not only across institutions but also across modalities. GE has a software solution that runs data locally into hospitals close to the MRI and to the CT scans called Edison. We are putting CarePath and SOPHiA DDM on top of Edison to combine the genomic and clinical data that we already compute in real-time across the globe with the imaging data produced locally. We will present these capabilities in partnership with GE at the symposium at ASCO.

Our next question comes from Mark Massaro of BTIG.

This is Vivian on for Mark. So how should we think about ASP trending with the potential ramp of some newer high-value products added to your portfolio? I think you have previously talked about mid-single-digit range growth. So just any color you could give there?

We have different levers to grow as a tech player. We land a customer, and then we can grow through volume increases, pricing increases, or customers adding new capabilities to their lab using our platform. In that sense, having a menu offering in a platform like SOPHiA DDM is very important. This is how we are unique, and we grow with customers like Moffitt on volume as they increase their consumption. For precise numbers, I will let Ross answer.

If you think about our historical commentary, we're aiming for price as a lever in the sort of 3% to 5% range for the business. Obviously, on a reported level, this quarter, you had a lot of noise from FX. You don't truly see that. Ultimately, given our unique positioning in the market, that’s typically where we will aim for relative to that driver. However, if we can realize significant increases in volume with the customer, we can afford to be flexible on price at scale. I wouldn't always expect that level of ASP improvement on a net new basis, but more so on stable business as we think about our recurring revenue, which constitutes our core base and continues to grow.

To conclude, the main growth comes from applications we're already covering in the platform. You should consider new applications as being primarily drivers for business moving into 2022 and 2023.

Just a quick follow-up. Are you able to give a flavor for your current customer base in terms of academic centers versus large hospitals and biopharma? And for your funnel, how you're prioritizing pursuing these different types of partnerships?

We don't disclose specific numbers per segment. However, this gives me the opportunity to highlight some numbers. From Q1 2021 to Q1 2022, we grew the number of platform customers who are using the platform day-in and day-out from 345 to 384, demonstrating that we grew due to customers having more volume, adopting new applications, and expanding our network size. I'm proud to say that year-on-year comparing Q1 2021 to Q1 2022, all numbers are up: from 340 to 385 active customers, from 53,000 analyses to 65,000. Our average revenue per user also grew from $74,000 in Q1 2021 to $92,000 in Q1 2022. In North America, we are seeing more activity with central labs. You should expect us to do more and more with central labs.

Thank you. At this time, I'd like to turn the call back over to Dr. Jurgi Camblong for our closing remarks. Sir?

Thank you all for joining us today. It was an exciting earnings call for us. We're very proud of what our team achieved in our Q1 performance, and we hope to see you all soon at our Investor Day in New York in September. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.