Good morning. My name is Nicole and I will be your conference operator today. I would like to welcome everyone to the SOPHiA GENETICS Third Quarter 2024 Earnings Conference Call. All lines are currently in listen-only mode. After the presentation, we will have a question-and-answer session. This call is being recorded on Tuesday, November 5, 2024. I will now hand the conference over to Kellen Sanger, SOPHiA GENETICS' Head of Strategy and Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to the SOPHiA GENETICS third quarter 2024 earnings conference call. Joining me today to discuss the results are Dr. Jurgi Camblong, our Co-Founder and Chief Executive Officer; Ross Muken, our Company President; and George Cardoza, our Chief Financial 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 these risks, uncertainties and factors that could cause results to differ appears in the press release issued by SOPHiA GENETICS 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 today by giving a brief update on our Q3 performance which played out largely as expected, as clinical volume reaccelerated and strong cost management resulted in a significant 39% year-over-year improvements to cash burn. I will then highlight the key growth driver over the next several quarters in MSK-ACCESS powered with SOPHiA DDM which continues to attract strong interest from customers across the board. And last, I will conclude with an exciting update in our leadership team as we further position our results for future growth. Ross will close by providing a more detailed update on Q3 performance and outlook for the remainder of the year. As mentioned, Q3 played out largely as expected as clinical volume reaccelerated across three geographies. We performed approximately 91,000 analyses in the quarter, representing year-over-year growth of 16% or 17% when excluding COVID-related volumes. As expected, the temporary headwinds affecting France, Italy and Spain in the first half of the year began to subside and analysis volume trended towards normalized levels of growth across these key regions. Expanding growth in the core business was offset by softness in biopharma which we flagged as a headwind last quarter. As anticipated, biopharma revenue was down materially in the period. Nonetheless, I remain confident in the changes made to the Biopharma business in Q2 and leading indicators such as a healthy and growing pipeline suggest that the business is regaining momentum as we move into the end of 2024 and into next year. Based on these factors, we reaffirm our revenue guidance for 2024 and look forward to a continued reacceleration of overall growth into 2025. A major driver of the clinical reacceleration in Q3 has been consistent, strong new business momentum throughout the year. During the quarter, 22 of the new customers signed earlier this year entered into usage, up from 14 customers in the prior year period. This meaningful step-up was the result of our focus on getting customers into working faster and consistently signing new customers each quarter. On the new customer front, we continue the trend of signing new business at elevated levels in Q3, as 20 new customers adopted SOPHiA DDM. Recent customers include the NHS Birmingham Movements Hospital in the U.K. who is adopting SOPHiA DDM for hereditary cancer screening, GeneView in the U.S. who is adopting the platform for rare and complex disorders, and a prestigious hospital based in Brazil adopting MSK-ACCESS powered with SOPHiA DDM. We will continue to be laser-focused on getting these new customers into routine usage through the end of the year and into 2025. As we continue to onboard more and more new customers to SOPHiA DDM, I have been pleased to see the scale of our technology platform come to life. Over 2024, we have consistently improved all expense categories while also strengthening commercial teams and customer-facing operations. In Q3, we expanded gross margins yet again and achieved an adjusted gross margin of 73.1%. We also continue to reduce operating expenses and improved adjusted operating loss by over 10% year-over-year. In addition, I'm incredibly proud that we delivered almost a 40% year-over-year improvement in cash burn. Looking ahead, we reiterate the previous guidance with respect to adjusted gross margins and adjusted operating loss and remain confident in our path to profitability. In summary, we saw a steady reacceleration of clinical volume in Q3 while also delivering substantial cost improvements and outstanding 39% reduction in year-over-year cash burn. Our continued ability to deliver strong new business momentum positions us well for future growth. Looking ahead to 2025, I would like to highlight one of our major growth drivers, MSK-ACCESS powered with SOPHiA DDM. The launch of MSK-ACCESS on SOPHiA DDM last quarter has enabled hospitals and labs across the globe to launch ordering on liquid biopsy testing from within their own institution instead of having to rely on central reference labs. In many cases, these decentralized testing methods resulted in lower costs and faster turnaround times while also enabling institutions to retain control of their patients' data for research or other purposes. Since launch, 18 customers across the world have adopted the application. The growing global community of MSK-ACCESS users on SOPHiA DDM now spans five continents and ten countries and includes world-class institutions such as the University of Heidelberg in Germany, NHS institutions in the U.K., and BioReference and Tennessee Oncology in the U.S. It's incredible to see this community of industry leaders come together to provide best-in-class cancer testing to patients across the globe. Moreover, we are immensely proud that SOPHiA DDM is the technology platform that has made this opportunity a reality. Looking ahead, I'm excited that 18 customers have adopted MSK-ACCESS during 2024 to implement the application and begin routine testing over the coming months. Of the 18 institutions signed to date, five very recently completed implementation and will ramp up their usage in Q4 and into 2025. As these customers come online, they will provide a meaningful catalyst to growth next year. Beyond the impressive progress we have made with MSK-ACCESS, I am also thrilled by the recent launch of the MSK-IMPACT powered with SOPHiA DDM application. This application, launched in October, offers yet another exciting area for growth as it is typically used in combination with MSK-ACCESS to provide patients with best-in-class treatment. As we enable more and more institutions across the globe to launch liquid biopsy and solid tumor testing, our network is also starting to attract notable interest from biopharma partners. Biopharma customers, such as AstraZeneca, are excited to leverage the SOPHiA network to improve deployment of their drugs and expand market access. Moreover, the data from this diverse patient population, along with the predictive multimodal algorithms we are developing, offer immense value to biopharma companies in the areas of drug development and discovery. Over the coming months, I look forward to updating you on our progress with biopharma partners and the expanding decentralized deployment of MSK-ACCESS and MSK-IMPACT. As SOPHiA continues to grow and exciting opportunities for future growth continue to emerge, I'm happy to end today by announcing a few changes to our leadership team which will position us well for the future. First, I would like to congratulate Ross on his well-deserved promotion to company President. As President, Ross will oversee the company's global business operations and lead day-to-day efforts focused on growing and scaling the business. He will continue to manage all commercial and go-to-market functions building on the strong progress he has already made in this critical area. He will also work closely with me on strategic matters as we continue to evolve as the leader in data-driven medicine. Second, I'm happy to welcome George Cardoza to the team as SOPHiA's Chief Financial Officer. George brings a wealth of experience, including deep financial expertise and a strong background in scaling and growing profitable businesses. Prior to joining SOPHiA, George was the CFO and Head of Service Delivery for Biocartis. He also spent over 12 years with NeoGenomics, where he served as Chief Financial Officer, President of Biopharma Services, and Chief Operating Officer. Before NeoGenomics, George spent more than 14 years with Cost Diagnostics in various roles. At SOPHiA GENETICS, George will oversee all finance functions, including accounting, FP&A, tax, and treasury. Welcome, George, to the SOPHiA team.

Thanks, Jurgi. I'm very excited to be joining the team. Thank you.

Thanks, George. We're happy to have you as well. With these changes, SOPHiA is now positioned better than ever to win in our space and capitalize on the momentum opportunity ahead of us. With that, I will now turn the call over to Ross who will provide more detail on our Q3 performance and outlook for the remainder of 2024.

Thank you, Jurgi, and good morning, everyone. As Jurgi highlighted, third quarter results came in largely as expected. Clinical volume growth continued to reaccelerate as the temporary headwinds impacting France and Italy in the second quarter began to subside. Spain remained somewhat challenged in the period, and we expect this softness to persist into 2025, given ongoing reimbursement dynamics in the solid tumor market. Platform analysis volume was approximately 91,000 for the third quarter of 2024 compared to approximately 78,000 for the third quarter of 2023. Year-over-year growth in analysis volume was 16% or 17% when excluding COVID-related volumes. From an application standpoint, strength in hemon testing and across our rare and inherited disease portfolio led the way with 26% and 29% year-over-year growth, respectively. North America and Asia Pacific experienced the strongest growth in the third quarter, with both regions growing at approximately 30% year-over-year. Growth in EMEA returned to the company average; however, weakness in Latin America partially offset the growth in other regions due to the churn of a large account that was acquired by another private lab earlier in 2024. While clinical volume experienced an initial stage of reacceleration, a challenging macro environment has continued to limit biopharma growth as budget constraints have made the signing of large contracts difficult and have caused sales cycles to elongate. Additionally, we had one major high-value contract partly slip from the third quarter to the fourth quarter. Weakness in biopharma offset clinical performance and total revenue for the third quarter of 2024 was $15.9 million compared to $16.3 million for the third quarter of 2023, representing a year-over-year decline of approximately 2.5%. Biopharma revenue declined over $2 million from the third quarter of 2023 to the third quarter of 2024 and was the primary driver behind the overall softness in the period. It's also worth noting that in Q3 of 2023 it was a tough comp for us overall as revenue grew 40% during that period. Moving on to an update on other key business metrics, core genomic customers were 462 as of September 30, 2024, up from 431 in the prior year period and up sequentially by five customers relative to Q2 of 2024. We continue to see strong new business momentum in the quarter as we signed 20 new logos in the third quarter. We are laser-focused on getting these 20 customers, as well as the influx of customers signed during the first half, into routine usage as quickly as possible. Beyond new customer wins, bookings and pipeline remain strong, continuing the trend we've seen throughout 2024. The annualized revenue churn rate was less than 4% for the third quarter of 2024, which is in line with our averages. Net dollar retention for the third quarter, which is net of revenue churn for the year, was 109% compared to 127% in the third quarter of 2023. This decrease is primarily attributable to the challenging performance in Latin America and the relative moderation of growth in Europe despite the selective reacceleration in the period. Gross profit for the third quarter of 2024 was $10.7 million compared to gross profit of $11.3 million in the third quarter of 2023, representing a year-over-year decline of 5%. Gross margin was 67.2% for the third quarter of 2024 compared with 69.1% for the third quarter of 2023. Adjusted gross profit was $11.6 million, a decline of approximately 2% compared to adjusted gross profit of $11.8 million in the third quarter of 2023. Adjusted gross margin was 73.1% for the third quarter of 2024 compared to 72.5% for the third quarter of 2023. We remain proud of our ability to manage costs, scale, compute, and continue to expand gross margins by 60 basis points despite soft revenue performance. This is exacerbated by the aforementioned biopharma revenue weakness which tends to carry a higher-than-average gross margin. Total operating expenses for the third quarter of 2024 were $26 million compared to $27.8 million for the third quarter of 2023. Across the functions, we continued to benefit from lower headcount on a year-over-year basis. R&D expenses decreased during the quarter as we increasingly focused on high ROI projects. Additionally, I remain pleased with our progress on the G&A side, where we also continue to benefit from targeted process improvements, system investments, and the optimization of our public company costs. Sales and marketing expense was up a bit primarily due to select investments aimed at accelerating penetration in several key markets as well as marketing initiatives to support our robust new product momentum. Operating loss for the third quarter of 2024 was $15.4 million compared to $16.5 million in the third quarter of 2023, an improvement of 7%. Adjusted operating loss for the third quarter of 2024 was $10.6 million compared to $11.8 million for the third quarter of 2023, an improvement of 10%. We remain pleased with our trajectory toward adjusted operating profitability. We continue to be highly disciplined with respect to headcount, focusing on optimized growth and scalability. We also continue to scrutinize all indirect expenditures, ensuring a balanced focus on hitting our growth targets and achieving the operational efficiencies desired. In the third quarter, I was particularly proud to see us maintain strong bottom line performance despite the expected soft revenue pull-through, demonstrating strong operating leverage in our business and the discipline of our team. Lastly, total cash burn for the third quarter of 2024 was $9.6 million. The $9.6 million in cash burn represents an impressive improvement of 39% compared to the $15.8 million in cash burn in the prior year quarter. As Jurgi mentioned, we remain pleased with our cash utilization trend and are on track regarding our medium-term liquidity trajectory. Cash and cash equivalents were approximately $95.8 million as of September 30, 2024. I'll now turn to our 2024 outlook. Given the promising reacceleration of clinical volume in the third quarter, SOPHiA GENETICS is reaffirming our full year revenue guidance for 2024 of $65 million to $67 million, indicating 4% to 7% year-over-year growth. We are also reaffirming our adjusted gross margin guidance in the range of 72% to 72.5% as well as our adjusted operating loss guidance between $45 million and $50 million, following our continued strong cost management in the third quarter. Of note, the implied revenue range for the fourth quarter is wider than we would typically anticipate, given the strong predictive nature of our clinical growth. It is meant to capture a wider range of potential outcomes in our biopharma contract delivery where several large deals are expected to contribute in the period. We remain diligently focused on improving our biopharma execution. Furthermore, we will continue to guide the business conservatively on a revenue recognition basis going forward, given the challenges experienced earlier in 2024. With that, I would like to turn the call back over to Jurgi for the closing remarks before we take your questions.

Thank you, Ross. I'm proud of what the team achieved this quarter, particularly our continued ability to expand gross margins, reduce operating loss, and improve our bottom line. I also remain excited about our future, looking for strong end markets to continue to grow. Cancer rates are increasing worldwide, better therapies are being developed each day, and data is critical for patient care as the new basis for diagnosis, therapy selection, drug development, and deployment. Given our business fits at the center of this innovation, accelerating and enabling the adoption of each, we remain confident in our long-term growth. In closing, I want to say thank you to our SOPHiA colleagues, partners, customers, and investors for joining us on our journey to transform patient care with data-driven medicine. Please note, we are presenting at the Guggenheim Healthcare Conference next week in Boston. We all look forward to continuing to update you on SOPHiA's success in democratizing data-driven medicine. With that, operator, you may now open the line for questions.

Our first question will be coming from Dan Brennan from TD Cowen.

Congrats on the quarter. Maybe just zooming out a bit on MSK, the relationship you guys cited it ten times in the press release. It's just more prominent right now than it's been in the past, I think. So could you just kind of zoom out and give us a sense of what you guys are enabling on MSK impact and access, maybe how this test is positioned broadly? And what kind of financial impact could this have as we look out to '25? Jurgi, you used the word, meaningful impact, in your prepared remarks on '25.

So, I'm going to start addressing what we are doing in terms of offering, and then I will let Ross give you a sense of what we expect in terms of future growth opportunities. As you know, liquid biopsy testing is primarily centralized today. And it has been demonstrated to be extremely important clinically for diagnosing patients when it's very hard to do that from a biopsy, such as for cases in lung cancer, prostate cancer, but also to follow patients longitudinally as they are treated with cancer drugs. So MSK-ACCESS, to start with, has been one of the applications that are being the most used for liquid biopsy testing around the world, and it has also been very much used in scientific publications. A couple of years ago, we signed an agreement with MSK to basically decentralize MSK-ACCESS as an application. This means the platform comes with a test kit that facilitates the adoption of this technology in the market. It took us a year to industrialize the solution and we launched MSK-ACCESS early this year. Since then, we've had great traction. We already have 18 customers around the world that have adopted it, including five that have moved to routine, and this spans five continents and ten countries. MSK-ACCESS itself, in its decentralized version, has a huge potential to transform cancer care around the world. In addition, beyond MSK-ACCESS, MSK has developed another application, CGP application called MSK-IMPACT, which is being used for solid tumor testing. As we industrialized MSK-ACCESS for its decentralized version, we launched the counterpart, MSK-IMPACT, within our platform. We see a lot of demand in the market, and we anticipate that many customers will actually use MSK-ACCESS and MSK-IMPACT in combination.

Thanks, Dan. Relative to Jurgi's comments, we already see quite good interest in the product with the 18 customers Jurgi mentioned, some of which are starting to contribute from a revenue perspective, albeit modestly, and we expect a much larger contribution over the coming years. We have 13 customers currently in the implementation phase. Typically, when we sign an application, it can ramp on average to about $100,000 per application per logo for something like liquid biopsy, where the price per patient is considerably above our company average and the volume tends to be greater given it is larger laboratories that are adopting. You can assume that number is much higher than the $100,000. We have quite a lot of interest, especially given the significant brand name of MSK in the adoption of this type of testing and genomic data production in laboratories worldwide. We're quite confident that this will be a nice contributor to our growth over the coming quarters and years.

Maybe, Dan, to end your question. Beyond the clinical market, there is a lot of interest from the biopharma market because biopharma companies really want decentralized testing for multiple reasons, including market access needs and to be exposed to data for discovery.

Great. If I can just ask one more. Nice quarter. I know you guys didn't touch upon some of the benefits towards '25, but consensus has you guys accelerating your top line growth a little bit above 20% next year. I'm just wondering if you think that's realistic as we sit here today, given where you sit with about 5% or 6% growth in '24? And maybe walk us through the key factors to bridge this big acceleration in '25.

Thanks, Dan. Indeed, I think this has been a strong quarter for multiple reasons, starting with our ability to improve cash burn by 39.1% on an adjusted basis. This demonstrates the scalability of our operations. When it comes to growth, the clinical growth has been good. The clinical volumes grew 17% year-on-year ex-COVID. So I would say we're on a good path to reaccelerate the business. I will leave you now with Ross, so he can give you a bit more flavor on how this should materialize in 2025.

It's too early for us to provide quantitative color on next year. But in general, the message this quarter is one of stabilization and improvement. We're quite comfortable in a reacceleration of growth. The specifics will be covered when we see you in 2025, but we are quite confident that we're on a path to display a more normalized performance.

Next question will be coming from Tejas Savant from Morgan Stanley.

Congrats on the quarter. So maybe just a question on pricing. You previously talked about some pricing headwinds your business is facing. How did those pricing headwinds play out during this quarter? Was it mostly EMEA or across regions? Are you seeing trends stabilize, improve, or worsen? If the trends haven't improved, are there any indicators as to when this dynamic could normalize?

Thanks for the question. Indeed, in our volume which is a consumption-based volume, analysis volume and ASP are very important elements. Ross, do you want to provide some color on pricing?

Sure. One of the other trends we shared last quarter was that we had some parts of Europe, particularly where there was modest pricing pressure. We saw a bit of that continue in Spain this quarter, particularly solid tumor. But I would say in Italy and France, we're starting to see stabilization. Some of that was quite temporal and related to some changing dynamics in the sequencing market, both with new players entering as well as with new platforms coming online. As we look out, we'll continue to take price on the base portfolio globally. We're quite confident about that. If you consider some of the newer products, those tend to have higher ASPs than average, which will contribute to our overall ASP.

Got it. One more question. Regarding a partnership with Microsoft and NVIDIA to launch a scalable whole genome application on DDM, how has progress been on this application? Is it still on track for launch by year-end?

Yes, absolutely. In regenerative disorders, we see a trend towards more exome and genome sequencing. We believe there will be enhanced versions of exomes and genomes which will improve the accuracy of these applications. That's something we're very focused on with both Microsoft and NVIDIA.

Next question will be coming from Mark Massaro from BTIG.

This is Vidyun on for Mark. Regarding the biopharma piece, could you speak to your confidence that the headwinds can roll off looking into 2025?

First, Q3 was a strong biopharma quarter for us last year. So we are being penalized versus that strong base. Despite this, the clinical business grew nicely with 17% volume growth year-on-year. On the pharma side, as you may remember, we revised our strategy to focus on DX activities such as sponsor testing and market access-related needs. This strategy has proven effective, and our sales pipeline has been growing over the last quarters. Pharma budgets remain tight, so we must deliver clear value.

If you look at the full year, the range is wider than we would typically expect, reflecting an improved momentum. The biopharma revenue in the fourth quarter represents a wide range of potential contributions, with sequential improvement implied. We feel much better about our go-to-market positioning, resulting from our recent leadership changes, with strong momentum building. Stay tuned for 2025.

Understood. Regarding the step-up in Q4 to get to the midpoint of your guidance, what product areas or seasonality tailwinds are giving you confidence there?

Just a reminder that our business typically sees more seasonal demand in Q4. We also gained momentum with new bookings throughout the year. The new accounts coming online, particularly with MSK-ACCESS, will generate a higher dollar revenue contribution. Between this seasonal improvement, pricing stabilization in Europe, and new accounts, we're confident that clinical will continue its trajectory into Q4 and next year.

Next question will be coming from Subbu Nambi from Guggenheim.

Jurgi, following up on biopharma comments, how are things trending month by month? Others in the group suggest that there is no positive inflection, but the environment is improving. Is that messaging resonating?

Yes, indeed. This message is resonating with pharma. This week, I met with one of the top ten pharma companies in oncology, focusing on how we can help them in their precision medicine strategy, starting with decentralized testing and access to data for market speed.

Ross, you are making good progress with operational spending discipline. Any initial parameters on where this can go over the next year?

We're committed to our path to profitability. Progress has been steady and perhaps a bit more impressive given the revenue challenges this year. We've managed costs nimbly and are showing proof points of strong operating leverage. With George joining, we look forward to continued improvement towards cash generation and sustainability.

Is your sales force focused differently for oncology versus rare diseases? Is it one sales force or two?

We tend to have a pod-based model where teams sell the full suite of applications and have technical engineers with in-depth knowledge of specifics. We focus on understanding customer needs and pain points. But our pipeline is well-balanced; oncology currently has more attention due to innovation and demand.

Thanks for the questions. First, congrats on the new job Ross and welcome to the team George. First, about clinical revenue, volume growth remains healthy for you, but some investors are concerned about a market slowdown in clinical sequencing volumes. Have you seen anything from a technology or reimbursement perspective that could change this trajectory for you, either positively or negatively?

Thank you, Conor. We haven't seen the slowdown. Our current and new customers are considering which instruments to invest in, leading to a reacceleration in analysis volumes. Ross, could you provide more color on where we see growth coming from?

From a global perspective, North America remains robust, and pipeline growth is promising. We see strong growth in Asia Pacific, with nearly 50% growth this quarter. EMEA is improving, particularly in Germany. Latin America is stable, but previous customer churn has impacted results. Overall, we're seeing strong volume growth.

On BioFire, most life science tools investors are aware of cautious spending in biopharma right now. How much of your revenue pushout is due to this dynamic? Is it competition from other AI vendors or a lower overall appetite from pharma?

It's definitely spending dynamics; the reason pharma would work with SOPHiA is due to our distributed network and the advantage we have in serving over 700-plus hospitals worldwide, which are Tier 1 university hospitals. In the biopharma market, we excel in post-approval activities like market access needs and real-world data, placing us well against peers.

There are no further questions at this time. I'd now like to turn the call over to Mr. Jurgi Camblong, our CEO and Co-Founder, for final closing comments.

Thank you very much for joining us today. A big thank you to the SOPHiA team for delivering impressive cash burn improvements year-on-year. Welcome, George, and congratulations, Ross. We look forward to seeing you at the Guggenheim Healthcare Conference in Boston next week. Thank you. Have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day, everyone.