SOPHiA GENETICS Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, and thank you for joining Sofia Genetics Second Quarter 2023 Earnings Call. Our host for today is Catherine Bailon, Head of Investor Relations. Ms. Baylon, you may begin.

Speaker 1

Good morning, and thank you for joining us on Sofia Genetics' 2nd quarter fiscal 2023 Earnings Call. My name is Catherine Baylon, and I am the Head of Investor Relations at Sofia Genetics. Joining me today are Doctor. Georgi Kamblom, our Co Founder and Chief Executive Officer and Ross Muken, our Chief Financial Officer and Chief Operating Officer. Before we get started, I'd like to remind you that the management team will make statements during this call that are forward looking within the meaning of the United States Federal Securities Laws.

Speaker 1

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Cautionary Statement Regarding Forward Looking Statements in the Form 6 ks for the Q2 earnings release on file with the SEC. Except as required by law, Sofia Genetics disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward looking statements Whether because of new information, future events or otherwise, this conference call contains time sensitive information and is accurate only as of its passed August 8, 2023. This presentation includes non IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS.

Speaker 1

These non IFRS measures supplement IFRS measures, but should not be viewed as substitutes for IFRS measures. We have included a reconciliation of IFRS measures to non IFRS measures in our press release issued Good morning, which is available on our website. Please note both the replay of this call and the earnings release will be available on our website in the Investor Relations section. And with that, now I'll turn it over to Jurgen.

Speaker 2

Thank you, Catherine, and good morning, everyone. We appreciate you joining us on our call today. I am pleased to share that our Q2 results came in strong With total revenue for the Q2 growing 30% year over year on a constant currency basis after adjusting for COVID-nineteen related revenues. We delivered this growth while maintaining our fiscal discipline, resulting in meaningful expense reductions from the prior year period. And so I am equally pleased to tell you that our operating loss on an adjusted basis was EUR 14,600,000, an improvement of CAD5 1,000,000 or 25 percent from the Q2 of 2022 and an improvement of CAD1.6 million from the prior quarter.

Speaker 2

On today's call, I will start by reviewing our progress in the Q2 as it relates to our strong business execution and the continued customer adoption of our market leading platform. I will then turn it over to Ross McCann, our Chief Financial Officer and Chief Operating Sure. To share our financial results for the period in more detail, followed by our outlook for the remainder of 2023, And we will end by taking your questions. Let me start with a review of the Q2 highlights. We added 16 new logos in the Q2.

Speaker 2

Of our more than 750 customers, 430 Our core Genomics customers that utilize our platform regularly through our dry lab bundle and integrated access modes. Our strong Q2 performance is also demonstrated by robust usage numbers across the board. For the Q2 of 2023, analysis volume across our core Genomics customers across proxy for patients was 78,146, an all time high, up 18% year over year. When excluding COVID related volumes. Platform Analysis volumes were 77,125 for the Q2 of 2023, up 27% year over year.

Speaker 2

I will now highlight some logo wins during the quarter across our geographies. In EMEA, we announced a new central lab in Italy that went live, CUPO Centro Servicii Medici, CSM, one of Italy's largest. CSM is a consortium that brings together numerous laboratories throughout Sicily. It offers roughly 1500 distinct types of tests to best serve the population. The use of Sofia DDM will support CSM's expansion of next generation sequencing offerings in hereditary cancers And allow them to materially improve turnaround time.

Speaker 2

In France, we added a new logo at the Centre Hospitales de Bastia, a general hospital located in Corsica, Daylan Live using Sofia DDM for myeloid malignancies. Also in EMEA, Ankara Ethic City The largest hospital in the capital city of Turkey went live during the quarter. The hospital, which opened its stores in September 2020 To answer about 15,000 patients daily, we utilize multiple Sofia Didym applications to streamline genomics testing, especially associated with hereditary In the APAC Asia Pacific region, which saw above company average Growth in analysis volume in the quarter, I would like to share with you our excitement about the Peter Maxellum Cancer Center, otherwise known as Peter Mac, That goes live on SofiaDDM. Peter Mack is a world leading cancer research, education and treatment center based in Melbourne, Australia. They will be using SofiaDDM to aid with testing that determines positive HRD status and will be focused on samples from women newly diagnosed with Advance Ovarian Cancer.

Speaker 2

Through our AI enabled algorithms, Peter Mark oncologists will be able to know The HRD status of the patient's tumor, aiding in the determination of which of their stage IV ovarian cancer patients are likely to benefit from treatment plans That includes PARF inhibitors, a relatively new alternative to chemotherapy in the treatment of ovarian cancer. And also in APAC, I would like to highlight a customer expansion example with Sofiva Genomics, a Taiwanese genomics for FRENCHLab that originally adopted Sofia DDM in Q1 2022 and that is now launching the Sofia Genomics HRD status test leveraging on Sofia ADM platform best in class AI based algorithms to maximize the accuracy in defining the HRD status for ovarian cancer sample. In the LatAm region, which is also growing above company average, I would highlight for you Nomar Genetics, an innovative reference lab specializing in genomics testing that is headquartered in Mexico City and Santiago de Chile. NoMad Genetics will also be using Sofia DDM for determining the HRD status of patients. Next, turning to the NORAM North America region, I would like to highlight Toulon University School of Medicine, a new logo in Louisiana.

Speaker 2

Culin was upgrading their sequencing platform and selected SofiaDDM because we could enable Quick rollout of hematological testing. With Sofia Didiam, Tulin can quickly sort and analyze NGS data, identify key biomarkers Daylan. And perform stratification so that researchers can share data driven recommendations with clinical researchers who are fighting over 100 types of blood cancers that are quickly progressing. Another NORAM win during the Q2 was Natural State Laboratory, a regional lab based in Little Rock, Arkansas. They chose Sofia DDM to help them expand their cancer testing capabilities, especially using it to launch e mails testing for hereditary cancer.

Speaker 2

Looking at the Q2 from the standpoint of genomics applications Dayla. Available on Sofia Didier for oncology and rare inherited disorders. We saw both categories with data volumes growth approximately at the company average year over year. In Oncology Applications, newer subsegments like HRD and Liquid Biopsy exhibited volume growth In the triple digits, while comprehensive genomics profiling grew several times above the company average. Within the rare and inherited disorders category, exome based data was the fastest growth subsegment, a testament that science has quickly evolved And laboratories are more comfortable going beyond made and large gene panel.

Speaker 2

While we are very excited about the increase of the SOPHIA Network and the increase on Sofia DDM usage, I would like to take a step back and explain you why this is important. When Sofia Genetics was founded, we intentionally began by servicing the clinical market through advanced cloud based genomics data analytics in in a decentralized setting. To date, using this unique approach, we have established a global network of Over 7 50 healthcare institutions that have collectively used our Sofia BDM platform to analyze over 1.4 1,000,000 Genomic Profiles. Another construct of our original idea was to be cloud based. And to that end, we have been unwavering to this commitment.

Speaker 2

We knew that the power of data Could not be achieved if silos were tolerated. Artificial intelligence techniques such as deep learning, machine learning, pattern recognition And statistical inference are being used for over 10 years to build our algorithms. Then Each analysis we do for our customers further trains our algorithms. The Sofia DDM platform has demonstrated the superiority of non silo data in its use to decipher the best treatment considerations in oncology. Our analytical capabilities have been critical to Yes, fully on board board leading partners such as Memorente Catherine, who while not yet computing their data on Sofia DDM, Trusted our vision, our experience and our capabilities to share their most precious data assets with us.

Speaker 2

Indeed, MSK choose to democratize their patient data set of over 75,000 profiles, the Cross data modalities, including genomic, clinical, treatment and outcomes data by sharing them into the Sofia D. M. Platform. The vision that we share with MSK is 1 in which academic institutions come together from across the world, powered by a decentralized cloud based a LNG provider such as Sofia, to share their data and knowledge. This will enable participating institutions to conduct collaborative research On bigger and more diverse data sets, accelerating the discovery of new insights.

Speaker 2

Additionally, This will enable biopharma companies to partner with these institutions to leverage their data and expertise in the pursuit of Trulie personalized diagnostics and treatments. The third element, which we see on the near horizon, is creating a data lake of a select group of world's leading cancer institutions, a consortium of the highest tier participants where they can have a safe sharing Environment to further their science. These select leading centers, such as MSK, will contribute certain aspects of their data into the consortium. We're excited to serve as a trusted host of this burgeoning collegial protected data lake. We could not be more excited about the prospect of further building this global, large scale, multimodal collective intelligence to advance cancer research.

Speaker 2

This desire of a collective intelligence across hospitals has already been proven by our ongoing Deepgram 4 flagship initiative. We have now onboarded 30 hospitals across the world in this multicentric international initiative to develop multimodal machine learning models that are able to predict response to immunotherapy in advanced lung cancer. In this context, we have recently onboarded polylinecogemaly in Rome, Italy, a top cancer center in Europe. Additionally, we are very excited to have now activated 5 centers across The LatAm region, which will further increase the data diversity on which our algorithms are trained. The recruitment of the study is going strong, and we expect to reach the milestone of 2,000 patients enrolled soon.

Speaker 2

We will be communicating a pre specified interim analysis in Q4 of this year. And at that time, we intend to give a first solid perspective on the performance of our model. We are very much looking forward to updating you as soon We are currently working on several advanced opportunities to deploy our multimodal capabilities in several oncology applications through biopharma collaborations. Indeed, beyond immunotherapy in lung cancer, we have demonstrated that our multimodal predictive models can Similarly, we applied to a variety of other oncology indications such as breast, kidney or brain cancer among others as well as different therapeutic modalities such as different classes of targeted therapies, chemotherapy and combinations thereof. Just this past quarter, a top 5 oncology pharma company sent their Phase III clinical trial data outside their organization For our teams to analyze for the purposes of multimodal algorithm build.

Speaker 2

This was a first for both organizations and demonstrates that Same trust in Sofia to be good stewards of highly sensitive patient information. Turning to key events. During the quarter, we attended ASCO, the conference of the American Society of Clinical Oncology, where our collaborators at Saint Leonberg in Lyon, France, provided an important update on the clinical validation of HRD using samples from the PAULA-one study, which was a study supporting the approval of AstraZeneca's PARP inhibitor, olaparib, as the first line treatment for ovarian cancer. With all this momentum, you can sense what makes us super excited about the investments we are making today and their potential in the future. So to conclude my section, we're experiencing the cusp of our data flywheel effect.

Speaker 2

I feel quite Thrilled to see each incremental adoption of our data cloud model by some of the most prominent global cancer participants. I believe this to be a leading indicator for future success for Sofia Didier. And so in closing, I feel as excited today as ever that Sofia Genetics has the elements in place that will enable us to accomplish What we set out to do 12 years ago to harness data from the global community to generate actionable insights that And now I will turn the call over to Ross to discuss our financial performance in more detail.

Speaker 3

Thank you, Yergi, and good morning, everyone. I'm pleased to share that we again delivered strong performance in the 2nd quarter, Continuing our commitment to sustainable growth. Turning to the financials. Total revenue for the Q2 of 2023 Was $15,100,000 compared to $11,700,000 for the Q2 of 2022, representing year over year growth of 29%. Constant currency revenue growth was 27% And constant currency revenue growth, excluding COVID-nineteen related revenue, was 30%.

Speaker 3

Platform analysis volume, including volumes from our integrated access customers, was 78,146 For the Q2 of 2023 compared to 66,165 for the Q2 of 2022. The 18% year over year growth was attributable to the strength of our core platform analysis volume, offset by expected continued decline of our COVID-nineteen related analysis volume. Excluding COVID related volume, platform analysis Grew a healthy 27% year over year in the period. Core genomic customers were 434 as of June 30, 2023, up from 426 in the prior year period. This includes 13 new routine customers in the quarter.

Speaker 3

Annualized revenue churn rate was 3% during the Q2 of 2023, in line with our expectations. Net dollar retention for the 2nd quarter improved sequentially on a reported basis to 114%. Constant currency net dollar retention, excluding COVID related revenue, was 118%. Strong net dollar retention and a healthy level of backlog continue to provide us with a high level of revenue visibility going forward. Gross profit for the Q2 of 2023 was $10,000,000 compared to gross profit of $7,600,000 in the Q2 of 2022, representing year over year growth of 32%.

Speaker 3

Gross margin was 67% for the $10,500,000 an increase of 34% compared to adjusted gross profit of $7,900,000 in the Q2 of 2022. Adjusted gross margin was 70% for the Q2 of 2023 compared to 67% for the Q2 of 2022. Overall, I remain highly encouraged by our progress and gross margin expansion And I'm increasingly confident in our medium term goal of sustaining adjusted gross margins in excess of 70% for a full fiscal year. Total operating expenses for the Q2 of 2023 were $30,100,000 Compared to $31,700,000 for the Q2 of 2022, headcount, our most significant Expense was down versus the prior year and down modestly sequentially. We continue to make progress on containing our discretionary expenditures and remain hyper focused on maximizing capital efficiency, while sustaining targeted growth levels.

Speaker 3

Turning to operating loss for the Q2 of 2023, it was $20,000,000 compared to $24,100,000 in the second Compared to $19,600,000 for the Q2 of 2022, I remain very encouraged by our consistent improvement And adjusted operating loss given the heightened focus on capital preservation, particularly in combination with sustained 30% core growth and gross margin expansion. Lastly, total cash burn for the Q2 2023 was $13,300,000 compared to $26,900,000 in the prior year quarter, down over 50%. We are quite proud of this achievement and remain committed to sustainable growth moving forward. Cash and cash equivalents were approximately 140 $1,000,000 as of June 30, 2023. Turning to our 2023 outlook.

Speaker 3

Based on our strong start to fiscal year 2023, we are reiterating all elements of our annual guidance With very slight changes to our underlying assumptions, we continue to expect reported revenue growth for the full year to be at or above 30% in 2023. Constant currency revenue growth, excluding COVID-nineteen related revenue for 2023, Is expected to be between 30% 35%, in line with our previously highlighted long term expectations. Of note, we now expect a headwind to 2023 reported revenues of approximately $900,000 related to a Teasing of COVID-nineteen related contribution, which was minimal in the Q2, this will equate to a headwind of approximately 16,000 analysis Change rates suggest a modest tailwind to reported revenues and a slight headwind to costs since the Swiss franc and to a lesser degree the euro Have appreciated noticeably, albeit continued FX volatility could change this. Additionally, following on strong cost performance Exhibited in the first half of twenty twenty three, Sofia Genetics continues to expect 2023 operating losses to be below 2022 levels. Lastly, with respect to the anticipated revenue cadence for 2023, I would note a slightly increased bias to 2nd half performance than previously communicated.

Speaker 3

This is due to a delayed start time for a small number of key contracts outside of our control. Originally, this work was slated to commence in late Q1, but now the majority has already begun in late 2Q. Fortunately, we do not see any impact of full year performance and that it is purely timing of recognition. With that, I would like to turn the Call back over to Yergi for the closing remarks before we take your questions. Yergi?

Speaker 2

Thank you, Ross. We're extremely proud of our performance, which we believe reflects our continued ability to execute on our vision and the opportunity ahead. Sofia's success stands on our ability to delight customers and continue driving more and more usage of our platform. I am encouraged and as confident as ever about the long term path that we are on. We have a fantastic opportunity to drive compelling returns and shareholder value.

Speaker 2

And speaking of shareholder topics, I would like to update you on the resolutions made at our Annual General Meeting of Shareholders of June 26 at our headquarters in Rolle, Switzerland. In addition to approval of the Board members who were up for reelection, Laila Tretikoff, a new Board member, was appointed. Laila is Deputy Chief Technology Officer at Microsoft, where she previously served as Corporate Vice President in Artificial Intelligence. And before Microsoft, Laila Treckikhoff was CEO at Terawatt and Wikipedia. We're excited to have added to our Board such a tremendous leader from the artificial intelligence and technology world with robust experience in bringing companies to scale on a global level.

Speaker 2

In closing, thank you to our Sofia colleagues, partners, customers and investors for joining us In our journey, without you, none of this would be possible. Please note, later this month, we are attending the UBS MedTech Tools and Genomics Summit in California. And in September, we will attend the Morgan Stanley Global Healthcare Conference in New York. I look forward to continuing to update you on Sofia's future success of democratizing data driven medicine. And with that, operator, you may now open the line for questions.

Operator

Thank you. And with that, Your first question comes from the line of Tejas Savant from Morgan Stanley. Your line is open.

Speaker 4

Hi, guys. This is Edmund on for Tasiast. Thank you for the time. I was hoping to get some more color on Spending trends.

Operator

I was

Speaker 4

wondering if you guys could speak to the demand you saw in 2Q from the lab and biopharma side? And specifically on the biopharma side, how are you thinking about your push In light of recent spending dynamics reported by others in the tool space.

Speaker 2

Yes. Thank you and good morning, Almond. So as you know, we've been at ASCO in June. And actually, this has been a very fruitful and successful event for us, where we've confirmed that Patient stratification, biomarkers become more and more complex and nuanced, right? And for the pharma companies who are developing more and Combined therapies, this demonstrated, if you like, for us and on the base of the discussions we have been having with many of the top 20 pharma companies, The importance of data diversity and smart algorithms.

Speaker 2

So while we appreciate that Maybe the world has evolved over the last years, we still see the need from the biopharma customers on getting access to real time and real world data. One example is in the context of decentralized trials where there is more and more demand for local NGS testing in oncology. And so despite, you may have read that There are more constraints on the expenses on the pharma. On our side, we do see more and more traction. And I think that's definitely the result of all the years we've spent in building the network, the platform, computing complex data, Building smart algorithms and as well attracting centers like MSK, Murent Sanketrin, which as you know has been sharing with us Over 75,000 clinical genomics profiles, of which many are of very important interest for the pharma in the context of preapproval efforts on the discovery side.

Speaker 2

Ivan Ross, if you want to add anything else?

Speaker 5

Thanks, Yirgi. You covered sort of where we are in the adoption curve. Obviously, we're a small entity, right, with With relatively modest amount of spend at pharma. And so from that standpoint, I'm not sure where the best read on kind of the macro. But I would say, If I look at our pipeline growth and I look at our activity levels and meetings and our bookings trends, which we obviously don't I feel quite good about how we're positioned and where we are.

Speaker 5

And obviously, again, we're in a very early stage of adoption and there's quite a lot of interest currently on AI and machine learning and how that can be leveraged within all elements All three Ds across the pharma context. And so obviously, it's something we're monitoring. We're looking for Changes in buying behavior and so forth or interaction, but to date, it's not something we've seen, but obviously, we'll report to you if we see any change in the outlook or the underlying demand environment.

Speaker 4

Got it. That's super helpful. And on that, I was wondering if you guys could provide Some color on your OUS market performance in the quarter. Are you guys starting to see any signs of customer spending trends diverging across geographies?

Speaker 2

Yes, Edmund. So as you know, this was one of the important questions when we went public in 2021, right? So market was expecting that, of We delivered a growth, which we have been doing since now July 2021, growing over 30% on constant currency and COVID, for example, this quarter, another demand was demonstrating that we could work with biopharma beyond the clinical market And we're being public about it with AstraZeneca deal as well as with the Banda Bio. And then another expectation that we highlight now was to demonstrate that Sofia Genetics platform that supports a decentralized network was compatible as well with the U. S.

Speaker 2

Market. So since the beginning of the year, just to highlight few names, we've been demonstrating that indeed TOFIA DDM could enhance both academic centers and Private Labs in the U. S. At Private Labs, we made public the deals we signed with Synergy, with Acutis In terms of academic centers, University of Arkansas and Toulon University, as you know as well, we've been partnering with MSK, which is, I think, a significant Partnership, a significant testimonial of probably the most prominent cancer center That's Beth from Sofia Didiam to create this world of collective intelligence sharing their data with us. And just to throw you a number, Edmond, Q2 2023 versus Q2 2022 in the U.

Speaker 2

S. Revenue has been growing up by 60%, so well above the average company growth.

Speaker 4

You for the time.

Speaker 2

Welcome.

Operator

Thank you. Your next Question comes from the line of Dan Brennan from TD Cowen. Your line is open.

Speaker 6

Great. Thank you for taking the questions, guys. Congrats on the quarter. Maybe first one, so the guide for the year, 30%, 35% constant currency growth, I think you're close to 30% in the first half. So I guess the question is, is 35% for the full year still a possibility, which would entail a meaningful acceleration in the second half?

Speaker 6

Should we be thinking midpoint most applicable? Kind of what drives the acceleration?

Speaker 2

Yes. Good morning and thank you for the question, Dan. So as highlighted right In today's disclosure by Ross, we had a little delay. We thought some of the pharma revenue would come a bit earlier. Despite that, as you see, we did EUR 15,100,000 in revenue, growing 30% year on year on constant currency and ex COVID.

Speaker 2

I don't know, Ross, if you want to give some more guidance to Dan on how H2 will be like.

Speaker 5

Thanks, Yurghi. So yes, Dan, on a first half basis, if you think about what we did in the Q1 as well, we're kind of in the middle of the range At the moment, I think certainly for us, right, we have high visibility of revenue. The one thing We certainly can't always control as kind of new project or new customer starts. And so we did have a couple that we had expected Early in the Q1, slip into mid to late second quarter, and so those are now going. So I would say on that end, we still feel quite good about our ability to perform this year and deliver on the growth.

Speaker 5

As I mentioned in the commentary, A bit atypical for us. You will see a stronger second half this year than we saw last year or the year prior in terms of cadence. And to give you a bit of color on that, we do expect it to build in the second half. And 3Q, particularly relative to last year, I think We'll be notably stronger as we had a very good 4Q last year as well. And so on that, the revenue that did Move out of the Q2, we'll start to recognize in the 3rd and then we'll build upon that.

Speaker 5

So still feel quite Good about our visibility and our ability to deliver on strong numbers for the year.

Speaker 6

Great. Thanks, Ross. Thanks, Sherry. Just on biopharma, I know you guys aren't really calling out the impact yet, given, I guess, its size. But when will we expect To get more visibility in the prepared remarks, obviously, you guys are excited about the demand trends within that segment and would just be interested to find out like any color you could provide about The contribution and or kind of visibility for investors.

Speaker 2

Yes. So indeed, we are very excited Because what we build is pretty unique, Dan, getting access to this data in a Centralized way, real time, real world, it's something that is very unique, very appreciated by the pharma companies to work with us in our 3 d strategy from Discovery to Development and Deployment. Now when it come to highlighting the revenue we do with the biopharma, Ross, what did you say on this one?

Speaker 5

Thanks, Georgi. Thanks, Dan. So I would say here, Obviously, we're very happy with performance of the biopharma group. And for us, we're building some Real momentum within this customer base. Revenue was obviously up materially, but as you said, off of the relatively low base.

Speaker 5

I think Certainly, we're constantly challenging ourselves to understand from a disclosure perspective when is the best time to break out this segment. We have some thoughts In terms of critical mass, but certainly, to the degree that it becomes more material and obviously when we gave our long term guidance, We gave you some framework of what that is likely to look like in terms of contribution. When it becomes more material to where for your It will help with modeling and understanding of our trend, we'll break it out. So obviously, some of that will depend on the size of new business wins and the cycling. And so hopefully, we'll have more an update on that in the future.

Speaker 5

But ultimately, here it's still at a size where we feel comfortable reporting on a total revenue basis versus segment basis.

Speaker 6

Got it. Okay. All right, Ross. Thank you very much. Congrats.

Speaker 6

Thank you, Ben.

Operator

Thank you. Your next question comes from the line of Rachel Van Stel from JPMorgan. Your line is open.

Speaker 1

Hi, good morning and thanks for taking the

Speaker 7

questions you guys. So first I just wanted to ask on Pharma Partnerships,

Speaker 1

I was wondering if you could

Speaker 7

give us Few more details on your latest expectations around Boundless Bio and AstraZeneca. And then how should we really think about those partnerships and the contribution heading into 2024?

Speaker 2

Yes. Thank you for the question, Rachel, and good morning. So as highlighted by Ross, right, so you can expect that H2 will be stronger versus other years because of this type of contract. We had announced the partnership with AstraZeneca now quite some time ago. And in February 2023, we had announced indeed that we had Sign a new agreement on the base of data that we gather, in particular, in the context of the DIPLOG4 study.

Speaker 2

We've done this bio, the project is as well progressing very nice. Just as a reminder, on this bio, it's a very innovative biotech company that is developing drugs Targeting specific type of cancers, about 20% of the cancers of what's called extracomodemal DNA. And so this could be a very holistic Our approach and universal approach to many cancers, so very excited. We're working with them on our side on the preclinical phases, enabling them to Straight that we can identify patients that could respond to this type of treatment. And so as you can expect, revenue will Starts to be visible as of Q3, Q4 and then accelerate in Q4 in 2024.

Speaker 2

Ross, do you want to add any more color?

Speaker 5

Thanks, Georgi, and welcome, Rachel. So from our standpoint, as Jyrgi mentioned, obviously, we're looking for the pharma business to continue to build in the second half. Obviously, it's a bit early to directly comment on 2024. But I think Fundamentally for us, we've taken a very, I would say, measured approach to growing this business. And we have a great leader there who's done a really nice job of helping us penetrate, obviously, the accounts you named as well as others.

Speaker 5

We hope to be able to talk about with you in the future. And so obviously, the goal here is if we're able to deliver differentiated insights And if we're able to deliver unique capabilities, our ability to scale up at these accounts continues to be very material. And as I've discussed before, obviously, the land and expand model will work in pharma as it does, but to a greater dollar size degree than in the clinical market. And so we look forward to hopefully proving that out for everyone Into the following years, but at the moment, we don't have any direct commentary on 2024.

Speaker 7

Great. And then I just wanted to ask On gross margin, you guys said 70% adjusted gross margins this quarter. I was just wondering about how should we think about that gross margin trending into the back half of the year? It looks like last year during 4Q, you had some one timers on that gross margin line. So is there any seasonality that we should be aware of from a gross margin perspective on the pacing between 3Q

Speaker 2

Thank you, Rachel. So I will take the opportunity of your question to highlight our strong financial discipline, Right. Over the last years, as you've seen, our gross margins have been constantly improving As well as being our cash burn, so which is another dimension, which I think is very important to highlight the financial discipline, Growing 30% year on year, not spending more money for TC, and that's something we're talking about Genesys has been very, very strong. Just as an highlight, in Q2 2023, our cash burn is $13,300,000 Versus $26,900,000 in 2022, right? So on the gross margin, Particularly, we have been very clear that we were expecting to have tech like gross margins, I think this is what we've been demonstrating over the last quarter.

Speaker 2

I don't know if Ross you want to give some more color beyond the Q2 and what could be expected in Q3 and Q4?

Speaker 5

Sure. So on the gross margin side, obviously, this is 1st quarter we've had in the last several that doesn't involve any sort of net benefits. So we're now sort of that, I would say, a clean number that we should be able to hopefully improve off of dependent on mix. I think as you look at the back Half of the year, our goal is to sustain 70 plus. It wasn't that long ago that we said 70 is sort of the bar of where we want to get to on a multiyear basis.

Speaker 5

To get here this quickly, we're obviously very pleased with that outcome. And I think we're certainly working hard on the hosting And compute cost side with our partner Microsoft, we're working on labor absorption. Mix tends to have some influence here. And so Given what we've said about pharma in the second half, that should be a bit of a tailwind. But ultimately, here, I think we're pretty happy With our performance and we're also choosing at times to reinvest back in When it makes sense, if there's an opportunity to grow them materially.

Speaker 5

So we're going to be continually measured, but Certainly happy with where we are and expect to deliver continued 70% plus in the back half.

Speaker 1

Great. That's it for me. Thank you, you guys.

Speaker 2

Thank you, Rach, and have a good day.

Operator

Thank you. And before we proceed, I'd like to remind everyone that in order to ask a question. Now the next question comes from the line of Mark Massaro from BTIG. Your line is open.

Speaker 8

Hey, guys. This is Vivien on for Mark. Thanks for taking the question. So it looks like your revenue per analysis picked up this Could you just discuss what's driving that or any initiatives to improve further on this front? I think at your Analyst Day, you discussed Land and expand, driving more applications per customer over time.

Speaker 8

So just any comments you have on increased utilization? Thanks.

Speaker 2

Thank you, Vivian, and good morning. So indeed, our strategy in the clinical market, in particular, has been a land and expand, right, She's very typical for a cloud native company. So we tend to land the customer on a specific application, so let's say, on solid tumor testing. And then as the customer starts using the platform and experience good returns, we see those volumes grow. And then what happens most of the time is that then the same customer will start adding a new menu in its lab.

Speaker 2

So let's say moving beyond solid tumor testing with Tim onc testing or HRD testing or liquid biopsy testing, all in our platform and which is what is driving as well The growth of our customers year on year. In the past, we've been using the net dollar retention to give a sense of What is the growth like? And for this quarter, it has been again above 100%, so which is really good. We We're actually at 114%. And if I'm not mistaken, this is very consistent with the previous quarter.

Speaker 2

So you should expect our model to continue grow in such a way. And that's why it's very important as well to land new customers Because those customers that you land today are customers that are going to grow tomorrow. And while we are very happy with the 27% year on year growth, which was Well distributed across regions. In terms of volume, we're very happy as well with the signing of 16 new logos, which enabled us now to grow With its logos and being able as we compute more patients' data to impact on more patients, but as well generate more revenue. Ross, in terms of numbers, do you want to go further?

Speaker 5

Thanks, Sergey. So I would say, Obviously, mix has been favorable for us. Additionally, currency finally is starting to no longer be a headwind, right? So That's helping as well and had been a drag. Additionally, as we burn off the COVID analysis, obviously, those come at a much Lower ASP, so it's going to help on the overall ASP performance.

Speaker 5

But I think holistically, we're quite pleased With the application sub segments that had strong performance in the quarter, we continue to have very good price capture And we look for this component of growth to continue to benefit us. But again, in any given quarter in a consumption model, you may see some changes In volume versus mix and price, but ultimately, it's all trending for us in the right direction.

Speaker 8

Okay, perfect. Thanks, Ross. And just a follow-up, could you share any color on the high growth Yes. Our applications like HRD and liquid biopsy. I think you mentioned last quarter that these were growing in the triple digits.

Speaker 8

And maybe you could also refresh us on what application they're driving the bulk of volumes today? And that's it for me. Thanks.

Speaker 2

Yes. Thank you, Vivien. So indeed, we're super happy with the traction we're having with HRD that we launched About a year and a half ago now, we are still growing triple digits. We have announced a number of customers that have been adopting Our platform for HRD testing this quarter, including Peter Mac in Australia, but as well in other This case is a private reference lab in the U. K.

Speaker 2

In London called Synovis. So we're very, very pleased with HRD testing. Today, HRD testing It's being required for ovarian cancer, but as you may know, for other type of cancers like prostate cancer or breast cancer, There is something similar that needs to be performed called HRR, so more logos recombination repair deficiency. And so in that front, we are very happy with the growth we're seeing. Another one to call is liquid biopsy, which is newer to us, But where we are growing as well triple digit and where we expect eventually growth to accelerate sometime next year.

Speaker 2

As you remember, we have signed this agreement with Memory and Soncaterin, which not only gave us their Data that we can leverage on the platform, so 75,000 clinical genomics cases, but as well to testing assets that Being highly published, called MSK Access for Liquid Biopsy and MSK Impact for solid tumor testing. And so the liquid biopsy trend and growth Should continue to be significant for Sofia as we launch the MSK access solution In the market, we centralized and support many other customers as of H1, so end of Last excuse me, end of first half of next year. On another note, we still see strong growth In solid tumor and in particular in comprehensive genomic profiling, where as you may remember, we have signed an agreement as well with Agilent on their short select GGP. And on that one, as we work together, we start to see as well good traction and good momentum in the market. And last, maybe the one I would highlight is on the rare and inherited disorders.

Speaker 2

We see a trend of More and more panels being basically grouped in terms of larger gene panels, which are exome based now And we're we've been growing as well year on year at 66%. Beyond that, we see demand on pharmacogenomics, a move towards possibly Well, genome sequencing and as well, we start seeing some demand on MRD, where we plan as well to launch some applications at least for Miluide sometime next year.

Speaker 8

Awesome. Thanks for taking the question.

Speaker 2

Thank you, Vivien.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call over to the presenters. Thank you.

Speaker 2

Thank you all today for attending our Q2 earnings. We are very proud of what has been the achievement of our Sofians in this quarter, growing Significantly, being extremely disciplined financially and being able as well to build technologies that will be launched early next year. With that, I encourage you following us and in particular joining us soon for the next two investor conferences, The UBS MedTech and Genomics Conference in August and the Morgan Stanley Conference in New York in September. With that, thank you very much and have a good day.

Operator

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

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Earnings Conference Call
SOPHiA GENETICS Q2 2023
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