SOPHiA GENETICS (SOPH), a global leader in data-driven medicine, reported a 13% year-over-year increase in revenue for the first quarter of 2024, amounting to $15.8 million. Despite this growth, revenues were below expectations due to a slower start in the year, attributed to lower analysis volume in January, extended setup times for new customers, and a delayed biopharma project.
However, the company observed a pickup in consumption levels in March, with positive momentum carrying into April and May. SOPHiA GENETICS remains confident in its growth strategy, backed by a $50 million debt financing agreement with Perceptive Advisors and is on track to achieve profitability within the next two years.
Key Takeaways
- SOPHiA GENETICS reported a 13% increase in Q1 2024 revenue year-over-year, totaling $15.8 million.
- The company signed 27 new logos in Q1, indicating expansion, particularly with the addition of Mayo Clinic in the U.S. and partnerships in the Asia-Pacific region.
- Despite softer growth in EMEA and Latin America, North America and Asia-Pacific showed significant strength.
- SOPHiA GENETICS reaffirmed its full-year revenue guidance of $78 million to $81 million.
- The company has secured a debt financing agreement for up to $50 million to support growth.
- SOPHiA GENETICS is aiming for profitability in the next two-plus years.
Company Outlook
- SOPHiA GENETICS is confident in a strong back-half ramp in 2024.
- Full-year revenue guidance remains at $78 million to $81 million, with expectations of a stronger second half.
- The company is focused on cost management and a trajectory towards profitability.
Bearish Highlights
- Lower-than-expected analyses volume in January affected revenue.
- Longer setup times for new customers and a delayed biopharma project resulted in softer growth, particularly in EMEA and Latin America.
Bullish Highlights
- Consumption levels and business momentum picked up significantly in March, continuing into April and May.
- New customer acquisitions and partnerships, such as Mayo Clinic and Samsung (KS:005930) Medical Center, demonstrate market growth.
- Strong demand and adoption for the MSK-ACCESS liquid biopsy application globally.
Misses
- Revenue fell short of expectations due to early-year soft volumes.
- Conversion from bookings to routine utilization has been weaker than anticipated.
Q&A Highlights
- SOPHiA GENETICS is closely monitoring proposed LDT regulations by the FDA and is open to M&A opportunities that align with financial discipline.
- Despite challenges in the biopharma sector, the company is optimistic about future growth and expects solid tumor HRD testing and thematic-related applications to drive volume growth.
- The company has received positive feedback on its MSK-ACCESS application, which commands a higher average selling price due to its sophistication.
SOPHiA GENETICS has shown resilience in the face of early-year challenges and remains steadfast in its commitment to innovation and market expansion. With strategic partnerships and a focus on high-demand applications such as liquid biopsy and solid tumor testing, the company is well-positioned to capitalize on the evolving needs of the data-driven medicine market. As SOPHiA GENETICS continues to navigate the intricacies of the global market, its strategic financial planning and customer-centric growth initiatives are expected to pave the way for sustainable growth and profitability in the coming years.
InvestingPro Insights
SOPHiA GENETICS (Ticker: SOPH) has shown a commendable ability to secure new partnerships and expand its market presence, as highlighted by the addition of 27 new logos in Q1 2024. This strategic expansion is further underscored by the company's solid financial positioning, as reflected in key metrics from InvestingPro. With a market capitalization of $306.26 million and a notable revenue growth of 26.68% over the last twelve months as of Q1 2024, SOPHiA GENETICS demonstrates a strong potential for further scaling its operations.
InvestingPro Tips for SOPHiA GENETICS suggest that while the company is quickly burning through cash, its liquid assets surpass short-term obligations, indicating a level of financial flexibility. Additionally, despite not being profitable over the last twelve months and analysts not anticipating profitability this year, the company's ability to hold more cash than debt on its balance sheet provides a cushion against financial headwinds.
Investors should note that SOPHiA GENETICS has experienced a large price uptick of 37.94% over the last six months, which may be indicative of growing investor confidence in the company's market strategy and future prospects. It's also important to consider that SOPHiA GENETICS does not pay a dividend, which could be a factor for those focused on income-generating investments.
For those interested in a deeper dive into SOPHiA GENETICS' financial health and future outlook, InvestingPro offers additional tips. To access these insights and further enrich your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 more InvestingPro Tips available for SOPHiA GENETICS, which can be found at https://www.investing.com/pro/SOPH. These tips could provide valuable guidance for both current and potential investors.
Full transcript - Sophia Genetics (SOPH) Q1 2024:
Operator: 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. At this time, all participants will be in a listen-only mode. [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.
Kellen Sanger: 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.
Jurgi Camblong: 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 analyses 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 analyses 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 analyses as compared to the approximately 84,000 analyses for the quarter. As a company that maintains close relationships with customers, conversations from the field further indicates that the change in consumption was temporary. Additionally, many customers also reconfirmed their volume assumptions for the full year, and we'll continue to monitor their usage closely. In addition to consumption returning to more normalized levels in March, bookings for new clinical business grew over 30% year-over-year in the quarter, nicely above our internal expectations. We also signed an impressive 27 new logos in Q1, up from 18 new logos in the prior year period. This marks a second consecutive quarter of strong new business growth as the 27 new logos signed in Q1 joined the 35 new logos signed in Q4 2023 to set up us nicely for a strong back-out ramp for the year. On the second point regarding longer than expected setup times, we have now fully ramped up a team of best-in-class subject matter experts with a deep experience in setting up and validating genomic workflows. These specialists, who we call our master team, are laser-focused in partnering with customers to often complete their proficiency testing quicker, so that they enter routine usage and begin generating revenue faster. This team is well-prepared to manage the existing influx of new customers we have experienced over the last two quarters. In Q1, we have 19 new customers into routine usage, up from 14 in the prior year period, and we are excited to see this positive trend continue. On the final point regarding biopharma delays, we have developed an action plan to recover the revenue and capitalize on growing demand in biopharma during the back half of the year. While our biopharma pipeline has more than doubled in the past year, the business is still in its nascent stages and the timing of biopharma revenue remains difficult to predict. In conclusion, consumption has returned to more normalized levels and new business remains strong. We have taken actions to reduce setup times and accelerate new customers into routine usage. And last, we have a plan in place to make advance of the growing number of biopharma opportunities we're seeing in the market. Given these factors, we remain confident in a strong back-out ramp in 2024 and are reaffirming our revenue guidance for the year. Before moving on to a more robust update on our commercial business, I do want to highlight that we also importantly continue to manage cost well in the quarter as adjusted operating loss improved 13% year-over-year to $14.1 million as compared to $16.2 million in Q1 2023. During the quarter, we remain obsessed with capital efficiency by continuing to take actions to optimize our operations and focus on increasingly high ROI projects. We also continued to work closely with partners such as Microsoft (NASDAQ:MSFT) and NVIDIA (NASDAQ:NVDA) to manage gross margins and our adjusted gross margins remained above 70% during the quarter despite the temporary softness in clinical volume and biopharma demand. We are proud of our cash management to date and therefore, are also reiterating our full-year guidance for 2024 with respect to our adjusted gross margin and adjusted operating loss and remain deeply focused on our goal of achieving profitability in the next two-plus years with an acceptable level of cash cushion. As we progress on our path to profitability, revenue growth continues to be the primary driver towards this objective. At SOPHiA, we grow our clinical revenue by landing new customers and expanding within those customers over time as they adopt more and more applications. As of March 31st, we had 463 core genomics customers who have used SOPHiA DDM in the past 12 months to analyze cancers and broad diseases, up sequentially by 13 customers and up annually by 26 customers. Our focus will be to continue to expand within these existing accounts by encouraging them to adopt more and more of our applications. Our proven ability to expand within existing customers is demonstrated by our continued high net dollar retention, which was 123% in Q1, up materially from 107% at the end of Q1 2023. Our ability to expand within existing customers also exemplifies the importance of landing new customers. As mentioned, Q1 was a strong quarter in terms of landing new customers with 27 new logos signed. For these customers as well as the 35 new customers signed in Q4, our market care team will be laser-focused on reducing their time to routine so that they begin generating revenue faster. I will now take a moment to provide more detail on some of our major new land and expand achievements during Q1. And in doing so, we'll also touch upon three primary factors driving our growth in 2024: The U.S. market, our world-class solid tumor applications and our new liquid biopsy offering. First, we continue to see compelling momentum in the U.S. market. Analyses volume in the U.S. grew 34% in Q1 when compared to the prior year period, and revenue grew 27%. We continue to win major new logos in the U.S., and today, I'm proud to announce the signing of Mayo Clinic, one of the top-ranked academic medical centers in the world with adopting SOPHiA DDM's capabilities in oncology, starting with in-home applications. Welcome Mayo Clinic to the SOPHiA community. Beyond the U.S., we achieved major recent wins in the Asia-Pacific market as well. In India, we continued our strong momentum from Q4 and signed a partnership with Strand Life Sciences in Bangalore, encompassing a broad-based collaboration that aims to bring SOPHiA DDM's oncology applications to patients across the country. Strand is an established partner of biopharma company in India, and we are excited to partner with them to improve patient health outcome growth. The addition of Strand along with recently announced partners in India, such as Karkinos and Tata, positions us very well in a country which is not only the most populated in the world but also developing very quickly in terms of precision medicine Outside of India, I'm also proud to announce today for the first time that Samsung Medical Center in Seoul, South Korea, went live on SOPHiA DDM this month using our world-class solid tumor application for HRD. With the addition of Samsung Medical Center, we now work directly with four of the top five oncology hospitals in the world. This list now includes Samsung, Mayo Clinic, Gustave Roussy, and MSK. It's rewarding to see these leading healthcare institutions continue to recognize SOPHiA DDM's best-in-class analytical capabilities as well as the platform's ability to save customers' valuable time and resources. In LatAm, I'm excited to announce that in Mexico, we expanded our relationship with INDMG, the Instituto Nacional de Medicina Genómica, one of Mexico's National institutes and a top research center in the country. In LatAm, an existing customer of ours is now adopting a hereditary cancer applications in addition to the solid tumor applications they already use. In LatAm estimates, these applications will be used to perform approximately 8,000 analyses per year. The last market that I will highlight is EMEA. Q1 performance in EMEA was representative of our company's performance overall with forward-looking indicators such as bookings and new logos outperforming internal expectations, but revenue failing slightly short. Modest revenue growth in EMEA can be primarily attributed to exaggerated seasonal consumption trends in Italy, Spain, and France as January had lower consumption levels than expected. Based on the recent trends and customer discussions, we expect revenue performance to return to previously expected growth levels as consumption picks up and new business won in Q4 and Q1 is onboarded over the course of the year. On that note, I will take a moment to highlight some of our major new business wins in EMEA, which again were ahead of our internal expectations. First, in the U.K., I'm proud to announce today the signing of Synnovis, a London-based lab, providing services to the NHS, who will be adopting our new liquid biopsy application, MSK-ACCESS powered with SOPHiA DDM. Synnovis provides lab services to Synlab as well as NHS institutions such as Guy's and St. Thomas' and King's College Hospital. Further, they joined the Royal Marsden Hospital as yet another NHS-related provider to recently adopt SOPHiA DDM. I'm excited to keep you updated on our progress with the NHS in the coming quarters. Speaking of major European healthcare institutions and also proud of the recent announcement we made with Unilab, one of the largest diagnostic labs in Europe who went live on SOPHiA DDM in April. Unilabs, which conducts more than 221 million tests annually is the latest of many central labs to have adopted SOPHiA DDM's world-class HRD application. Beyond the U.K., I'm also excited to announce today that we deployed SOPHiA DDM in a resounding three new countries in EMEA during Q1. This includes Romania, Norway, and our first customer in Africa, in Nigeria. In Romania, Personnel Genetics, Romania, a major central lab located in Bucharest, a member of the largest private medical network in Romania, recently adopted SOPHiA DDM's world-class solid tumor and in-home applications. In Norway, Stavanger University Hospital, one of Norway's largest hospitals adopted our new liquid biopsy application, MSK-ACCESS powered with SOPHiA DDM. And lastly, Syndicate Bio, a precision medicine lab in Nigeria that aims to provide cancer testing to over 1 million cancer patients in Africa each year, also adopted MSK-ACCESS powered with SOPHiA DDM. Syndicate Bio joins the SOPHiA DDM community as part of our collaboration with MSK and AstraZeneca (NASDAQ:AZN), which aims to advance health equity on a global scale by expanding access to cancer testing worldwide. Syndicate Bio marks the expansion of our footprint into Africa and represents yet another proof point of how the decentralized model sustainably enables local institutions to support their patients' needs. The deployment of MSK-ACCESS powered with SOPHiA DDM in Africa also represents a significant breakthrough on the MSK initiative started more than 15 years ago to improve outcomes for people with cancer in low and middle-income countries in Sub-Saharan Africa. I'm incredibly proud of this important step towards our mission. All of the progress I've spoken about today with respect to SOPHiA DDM liquid biopsy applications and especially MSK-ACCESS powered with SOPHiA DDM has been increasingly impressive and even more so, when you consider that the application's official commercial launch was only last week. For prelaunch activities, a resounding line of customers have already adopted MSK- MSK-ACCESS powered with SOPHiA DDM. These institutions include BioReference and Tennessee Oncology in the U.S., [Indiscernible] in Canada, Dasa in Brazil, Syndicate Bio in Nigeria, Synnovis in the U.K., Stavanger University Hospital in Norway, [indiscernible] in France, and SOFIVA GENOMICS in Taiwan. Customers are attracted to MSK-ACCESS powered with SOPHiA DDM for three primary reasons. First, the application leverages our proprietary CUMIN and PEPPER algorithms to accurately detect variants in blood samples with low input materials and maintain the high level of accuracy of the MSK-ACCESS test when deploying it in a decentralized manner. Second, we deploy a tumor-normal approach that removes biological false positive and enables customers to confidently identify relevant alterations while also saving them valuable time and resources. And third, MSK-ACCESS powered with SOPHiA DDM allows customers to retain ownership of their samples and data and therefore enables them to develop their own expertise and become lighthouses for precision medicine. As you can tell by the strong progress we have made prelaunch, this unique value prop are resonating with customers, and our liquid biopsy offering is driving significant demand in the market. This demand was evident during the liquid biopsy launch event that we hosted at our offices last week in Rolle, Switzerland. The event included attendees from MSK, many friends and potential MSK-ACCESS adopters from around the world, and over 35 key opinion leaders across Europe as well as our biopharma partners. Thanks to you to those who join us. We're excited to work together to expand access to world-class cancer testing in liquid biopsy space. On that note, I want to highlight that the benefits of MSK-ACCESS powered with SOPHiA DDM not only resonate with clinical customers, but with our biopharma customers as well. Biopharma companies are mutually interested in expanding access to cancer testing worldwide and have demonstrated such by sponsoring the deployment of SOPHiA DDM in several instances. More equitable and accurate diagnosis improves market access broadly. Additionally, more accessible cancer testing enables better identification of patients for clinical trials, which can accelerate the development cycles of targeted therapies. As announced previously, we recently entered a major collaboration with AstraZeneca to sponsor the deployment of MSK-access globally. The contract was finalized last month with a plan to sign numerous institutions across the globe to MSK-access in 2024. MSK-ACCESS powered with SOPHiA DDM offers AstraZeneca a unique platform to accelerate drug deployment and development. For institutions signed as part of this collaboration, AstraZeneca will fund the setup programs and evidence-generation activities. Apart from sponsored deployment of our platform, biopharma companies are also eager to gain access to the genomic and multimodal data computed by our platform as well as the advanced multimodal algorithms that we've developed on the data, which are housed in SOPHiA CarePath. In particular, our multimodal data offering provides biopharma companies with critical insights for their Phase 2 trial and market access needs as our sophisticated algorithms can be used to identify specific characteristics of populations that are failing to respond to the current standards-of-care. Last quarter, I provided an update on a recent project with one of our biopharma partners, where SOPHiA CarePath identified a signature in few population of lung cancer patients, which could indicate different treatment effects of the drug. As you can imagine, this has the potential to be valuable to the biopharma customer for both market access and trail designing. Beyond our learning capabilities, I'm excited to announce today that we recently signed our first breast cancer pilot. The project will follow a similar approach as taken for the lung project, and we leveraged SOPHiA CarePath multimodal factory to identify novel multimodal biomarkers and advanced personalized treatment for Stage 4 hormone-positive breast cancer patients. The collaboration will be a proof of concept for applying machine learning approaches to breast cancer patients, and that such approaches can identify multimodal predictive signatures of response to therapy. More to come on this topic in the future. Beyond lung and breast, we recently expanded our multimodal offering to kidney cancer as well. In Q1, we announced the publication in Nature's Precision Oncology Journal of a multiyear study between us and the French Kidney Cancer Research Network, UroCCR, in which we analyzed 3,300 kidney patient cases. In doing so, we developed algorithms to predict post-op outcomes and validate immuno-oncology produce facing renal cell carcinoma. Going forward, we're excited to bring our multimodal analytics capability for lung, breast, and kidney cancer, among others to even more biopharma companies across the globe and capitalize on the large pipeline we have in this area. Along the lines of fueling our future growth, I'm also proud today to make one final important announcement. In light of some of the recent market trends, we believe we are in a position of trends to be able to take advantage and accelerate our growth through organic and/or inorganic initiatives. We have, therefore, entered into an agreement with Perceptive Advisors for up to $50 million in debt financing to provide additional capital flexibility to pursue our growth strategy. I'm pleased to further reinforce our already strong balance sheet while providing us with increased buffer and flexibility on our path to profitability. And with that, I will now turn the call over to Ross, who will provide more details about our financial performance in Q1 and outlook for the rest of the year.
Ross Muken: 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 analyses 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 analyses 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 up to three months to setup timelines, meaning that we will likely see a larger impact from recent key wins in late 2024 and more notably in 2025. And last, we did see one biopharma project unexpectedly become to [Indiscernible] as sales cycles appear to be elongating for larger deals as we have noted prior fluctuations in deal timing that have outsized impacts on our quarterly cadence of reported revenue. Beyond these factors, we are seeing many positive trends in the business. For existing customers, consumption picked up considerably in March, and this momentum is continuing now into April and May. In addition, many customers have also reconfirmed their volume assumptions for the full year despite the light start. Further, reaction shipments for our bundled solutions were strong in Q1, up 26% year-over-year with even further levels of acceleration exhibited in April. These shipments of partner wet lab components are typically a reliable indicator of future platform usage. This trend leads us to believe that the usage of the platform should sustain at normalized levels going forward. With respect to new business, forward-looking indicators remain strong. Clinical bookings grew 32% year-over-year in the quarter, nicely above our internal expectations. We also signed 27 new logos in Q1, adding to the 35 new customers we signed in Q4 2023. Last, pipeline for the clinical business grew over 50% year-over-year in Q1, and the pipeline for the biopharma business more than doubled, indicate a healthy and growing end market. Specifically, we are seeing interest around MSK-ACCESS powered with SOPHiA DDM in both clinical and biopharma markets. This marks the second consecutive quarter of strong forward-looking indicators, which in combination with the return to expected consumption levels as well as the actions we are taking to reduce implementation times and address biopharma delays, gives us confidence for a strong back half of 2024. Moving on to an update on other key business metrics, core genomic customers were 463 as of March 31, 2024, up from 437 in the prior year period and up sequentially by 13 customers relative to Q4 of 2023. Our annualized revenue churn rate was approximately 4.5% for Q1 2024, slightly higher than our expectations due to the loss of one customer via acquisition in Latin America. Net dollar retention, which is net of revenue churn for the year improved to 123%, up 1,600 basis points from 107% in Q1 2023. Constant currency net dollar retention excluding COVID-related revenue, was 122% as compared to 121% in Q1 2023. Gross profit for the first quarter of 2024 was $10.4 million compared to gross profit of $9.7 million in the first quarter of 2023, representing year-over-year growth of 7%. Gross margin was 65.9% for the first quarter of 2024 compared with 69.4% for the first quarter of 2023. Adjusted gross profit was $11.1 million, an improvement of 9.9% compared to adjusted gross profit of $10.1 million for the first quarter of 2023. Adjusted gross margin was 70.5% for the first quarter of 2024 compared to 72.5% for the first quarter of 2023. Despite the modest softness in revenue this quarter, we are proud of our ability to manage costs and still compute accordingly, in order to maintain adjusted gross margins above 70%. The comp of this quarter was also tougher as we recognized the remainder of a one-time benefit to computational storage-related costs from our Microsoft partnership in the first quarter of 2023, which previously benefited gross margins by about a 180 basis points. Total operating expenses for the first quarter of 2024 were $29.2 million compared to $29 million for the first quarter of 2023. Across the functions, we continue to benefit from lower headcount on a year-over-year basis. Additionally, I remain pleased with our progress on the G&A side, where we also continue to benefit from lower professional service fees and the optimization of our public company costs. R&D expenses remained flattish this quarter as we continue to focus on increasingly high ROI projects. Sales and marketing expenses were up a touch primarily due to higher commission payouts on new business wins. Operating loss for the quarter was $18.8 million compared to $19.3 million in the first quarter of 2023. Adjusted operating loss for the first quarter of 2024 was $14.1 million compared to $16.2 million for the first quarter of 2023. We continue to be pleased with our trajectory towards profitability and believe the additional headcount actions we took in the second half of 2023, and incremental discretionary expense controls implemented, were necessary to sustain the positive momentum across the balance of 2024. Of note, below the line in this quarter, we did have a significant favorable unrealized FX gain that benefited net income. Lastly, the total cash burn for the first quarter of 2024 was $19.5 million compared to $16.8 million in the prior year quarter, representing 16.3% year-over-year growth. The increase in cash burn could be attributed to unfavorable FX translation on cash of approximately $3 million. Excluding this unfavorable FX impact, operating cash burn was down slightly year-over-year in Q1. We remain happy in cash utilization trend and are on track with respect to our medium-term liquidity trajectory. Cash and cash equivalents were approximately $103.7 million as of March 31, 2024. Turning to our 2024 outlook. Given the return to expected consumption levels in March, healthy observed growth in reaction shipments, strong bookings and new logos in Q1, and actions taken to accelerate setup times, we believe we will be able to mitigate the modest revenue shortfall experienced in January over the course of the year. Therefore, SOPHiA GENETICS is reaffirming our full-year revenue guidance for 2024 of $78 million to $81 million or revenue growth of 25% to 30% year-on-year. With respect to seasonality, we now expect revenue to be notably second half weighted in 2024, with underlying utilization following a typical quarterly cadence while new business will be skewing revenue to the third and fourth quarters. Additionally, we expect pharma-related revenue to be stronger in the second half, given the recognition requirements of recently signed awards as well as elongated new business timelines. Additionally, we would note FX has weakened modestly from our original expectation, creating an incremental headwind in 2Q of a few hundred basis points. Following on our solid cost performance in Q1 2024, SOPHiA GENETICS also reaffirms our adjusted gross margin guidance in the range of 72.5% to 72.7% as well as our adjusted operating loss guidance of between $45 million and $50 million loss. Furthermore, we remain confident in our medium-term path to adjusted operating profitability. We have taken the necessary cost actions to expedite that goal and continue to be obsessed with capital efficiency. This requires sustaining medium-term revenue momentum at our previously communicated targeted levels while ensuring a reasonable time frame to cash flow generation. To achieve this in 2024, we will continue to revisit our discretionary expenditures and execute and identify savings in systems, professional services, and certain public company costs. The combined nature of these items and the natural operating leverage in the business from strong revenue growth will further our path to adjusted operating profit big in the next two-plus years. Lastly, I'm pleased to share that we have recently entered into an agreement with Perceptive Advisors for up to $50 million in debt financing to provide additional capital flexibility to pursue our growth strategy. This may include both organic and inorganic growth efforts. As part of the agreement, we will be drawing $50 million immediately with an additional tranche of $35 million available through March 2026 for us to pursue the right opportunities. The interest on the loan is payable in cash on the outstanding principal amount at a per annual rate equal to the sum of the higher of the applicable secured overnight financing rate or the minimum floor rate of 4% plus 6.25%. Under the terms of the agreement, Perceptive has been issued warrants to purchase 400,000 shares of the company's stock as of the closing date with an exercise price equal to the 10-day volume-weighted average price preceding the closing date. Warrants to purchase 200,000 shares will be issued immediately and warrants to purchase an additional 200,000 shares will be issued upon drawing of the subsequent tranche. In addition, this transaction further reinforces our already strong balance sheet, and we're pleased to have the support of Perceptive, a recognized leader in growth capital financing. With that, I would like to turn the call back over to Jurgi for the closing remarks before we take your questions.
Jurgi Camblong: 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: Ladies and gentlemen, the line is now open for questions. [Operator Instructions] Our first question today comes from Conor McNamara from RBC Capital Markets. Please go ahead with your question.
Conor McNamara: Hey guys, thanks for taking the questions. Appreciate it. And Ross thanks 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 two quarters?
Jurgi Camblong: 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.
Conor McNamara: Great. Thanks for that clarity Jurgi. Go ahead Ross.
Ross Muken: No, 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 analyses 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.
Conor McNamara: All right. Thanks for that clarity. Very helpful. And just one question on testing volume. Well, do you anticipate any impact on testing volumes as a result of the recently proposed LDT regulations by the FDA?
Jurgi Camblong: 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.
Ross Muken: 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.
Conor McNamara: Great. Thanks guys and we'll see you next week.
Ross Muken: Thank you.
Jurgi Camblong: Thank you very much.
Operator: Our next question comes from Tejas Savant from Morgan Stanley. Please go ahead with your question.
Yuko Mihara: Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. For the lab setups that you have undertaken that involve sequencing platforms for emerging vendors, you indicated you take approximately three 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?
Jurgi Camblong: Yes, good morning Yuko 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 (NASDAQ:ILMN) 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.
Yuko Mihara: Great. Thank you for that color. 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?
Jurgi Camblong: Yes. thank you, Yuko, 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 Alamut 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.
Ross Muken: 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.
Yuko Mihara: Thank you for that color.
Jurgi Camblong: Thank you, Yuko.
Operator: Our next question comes from Dan Brennan from TD Cowen. Please go ahead with your question.
Unidentified Analyst: Hey, good morning. This is Kyle on for Dan. Jurgi, 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?
Jurgi Camblong: 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.
Unidentified Analyst: Got it. Thank you. 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?
Jurgi Camblong: 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. Hereditary 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 nine specifically for MSK-ACCESS, including between Q4 2023 and Q1 2024 BioReference in the U.S., Tennessee Oncology in the U.S., [Indiscernible] in Canada, Dasa in Brazil, Syndicate Bio in Nigeria, SOFIVA GENOMICS in Taiwan, [Indiscernible] 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?
Ross Muken: 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 2025. 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.
Unidentified Analyst: Got it. Thank you.
Operator: [Operator Instructions] Our next question comes from Mark Massaro from BTIG. Please go ahead with your question.
Vivian Bais: Hey guys, this is Vivian on for Mark. Thanks for taking the questions. 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? Thanks.
Jurgi Camblong: Yes. Thank you, Vivian. 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?
Ross Muken: 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 two, 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.
Vivian Bais: 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?
Jurgi Camblong: Yes. So, thank you very much, Vivian. 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 two of our customers, so on French and one German from mark institutions. Actually, the sensitivity and specificity so far are extremely high, Vivian, 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 nine 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.
Vivian Bais: Great. Thanks so much for taking the questions.
Jurgi Camblong: Thank you, Vivian.
Operator: 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.
Jurgi Camblong: 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 two-plus years. With that, thank you very much, and have a good day.
Operator: 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.
Jurgi Camblong: Thank you.
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