Sophia Genetics(SOPH) - 2022 Q1 - Quarterly Report

Report of the Statutory Auditor The statutory auditor's report provides an unqualified opinion on the consolidated financial statements, confirming their fair presentation in accordance with IFRS and Swiss law Opinion and Basis for Opinion PricewaterhouseCoopers SA issued an opinion confirming the 2021 consolidated financial statements provide a true and fair view of the company's financial position and performance - The auditor's opinion confirms that the 2021 consolidated financial statements are a true and fair representation of the Group's financial position and performance[3] - The audit was performed in accordance with Swiss law, International Standards on Auditing (ISAs), and Swiss Auditing Standards[4] Audit Approach The audit scope was determined by a group materiality of $3.68 million and focused on revenue recognition from the SOPHiA platform, particularly the estimation of stand-alone selling prices Audit Materiality | Metric | Value (USD thousands) | | :--- | :--- | | Overall Group materiality | $3,680 | | Benchmark applied | Loss before tax | | Rationale | It is the benchmark against which the performance of the Group is most commonly measured | - The audit scope addressed over 90% of the Group's total revenue, with full scope audits on Swiss and French entities and specified procedures on the U.S. entity[7] - The primary key audit matter was "Revenue from SOPHiA platform," focusing on the Group's use of the residual approach to determine the stand-alone selling price of analyses, which relies heavily on management estimates[16][17][18] Responsibilities and Other Information This section delineates the Board of Directors' responsibility for financial statement preparation and internal controls, and the auditor's role in providing reasonable assurance - The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with IFRS and Swiss law, including internal controls and the going concern assessment[25][27] - The auditor's objectives are to obtain reasonable assurance about the absence of material misstatement in the financial statements and to issue an opinion[28] - The auditor confirmed the existence of an internal control system designed for the preparation of consolidated financial statements as instructed by the Board of Directors[33] Consolidated Financial Statements This section presents the company's financial performance, position, and cash flows for the period ended December 31, 2021, highlighting key changes and trends Consolidated Statements of Loss In 2021, revenue increased to $40.5 million, but the net loss widened significantly to $73.7 million due to substantial increases in operating expenses Consolidated Statements of Loss (Year ended December 31, in USD thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $40,450 | $28,400 | $25,362 | | Gross profit | $25,221 | $17,691 | $17,830 | | Operating loss | $(71,489) | $(37,387) | $(32,287) | | Loss for the year | $(73,675) | $(39,339) | $(33,791) | | Basic and diluted loss per share | $(1.33) | $(0.93) | $(0.90) | - Revenue grew 42.4% year-over-year in 2021, while the loss for the year increased by 87.3% year-over-year[37] - The increase in operating loss was driven by significant growth in R&D costs (up 43.0% YoY), Selling and marketing costs (up 64.8% YoY), and General and administrative costs (up 118.9% YoY)[37] Consolidated Statements of Comprehensive Loss The total comprehensive loss for 2021 was $78.0 million, primarily due to the net loss and negative currency translation differences Consolidated Statements of Comprehensive Loss (Year ended December 31, in USD thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Loss for the year | $(73,675) | $(39,339) | $(33,791) | | Currency translation differences | $(4,736) | $7,338 | $272 | | Remeasurement of defined benefit plans | $461 | $184 | $(1,523) | | Total comprehensive loss for the year | $(77,950) | $(31,817) | $(35,042) | Consolidated Balance Sheets Total assets increased to $320.2 million in 2021, driven by IPO proceeds, leading to a substantial increase in total equity to $275.4 million Consolidated Balance Sheet Highlights (As of December 31, in USD thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $192,962 | $74,625 | | Total current assets | $282,855 | $109,694 | | Total assets | $320,173 | $132,115 | | Liabilities and Equity | | | | Total current liabilities | $28,603 | $21,587 | | Total liabilities | $44,773 | $31,605 | | Total equity | $275,400 | $100,510 | | Total liabilities and equity | $320,173 | $132,115 | - The significant increase in cash and total equity was primarily driven by the net proceeds from the company's Initial Public Offering (IPO) in 2021[43] Consolidated Statement of Changes in Equity Total equity grew to $275.4 million in 2021, mainly from $239.8 million in net proceeds from capital raises, offset by the $78.0 million comprehensive loss Changes in Equity for 2021 (in USD thousands) | Description | Amount | | :--- | :--- | | Equity at Dec 31, 2020 | $100,510 | | Total comprehensive loss | $(77,950) | | Share-based compensation | $8,514 | | Share options exercised | $4,527 | | Sale of shares in IPO, net | $211,663 | | Sale of shares in private placement, net | $19,648 | | Sale of shares in greenshoe offering, net | $8,488 | | Equity at Dec 31, 2021 | $275,400 | Consolidated Statement of Cash Flows Net cash used in operations increased to $57.9 million in 2021, but substantial financing activities, primarily from the IPO, resulted in a year-end cash balance of $193.0 million Consolidated Statement of Cash Flows Highlights (Year ended December 31, in USD thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash flows used in operating activities | $(57,939) | $(31,730) | $(31,680) | | Net cash flow used in investing activities | $(56,934) | $(24,323) | $(3,033) | | Net cash flow provided from financing activities | $237,773 | $107,045 | $(1,023) | | Increase in cash and cash equivalents | $122,900 | $50,992 | $(35,736) | | Cash and cash equivalents at end of the year | $192,962 | $74,625 | $18,069 | - Financing activities in 2021 were dominated by proceeds from the IPO ($211.7 million), private placement ($19.6 million), and greenshoe offering ($8.5 million)[48] Notes to the Consolidated Financial Statements This section provides detailed disclosures on the company's accounting policies, financial instrument risks, capital management, and specific balance sheet and income statement items Note 1. Company information and operations SOPHiA GENETICS, a Swiss healthcare technology company, completed its Nasdaq IPO in July 2021, raising $211.7 million net, alongside a $19.6 million private placement - The company is a healthcare technology firm with a cloud-based SaaS platform, SOPHiA DDM, for analyzing multimodal health data[50] - Completed its IPO on the Nasdaq in July 2021, raising aggregate net proceeds of $211.7 million[54] - A one-to-twenty share split was effected on June 30, 2021, and all share and per-share amounts have been retroactively adjusted[53] Note 2. Significant accounting policies The financial statements are prepared under IFRS, using USD as the reporting currency and CHF as the functional currency, requiring significant management estimates in key areas - The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS)[58] - The company's reporting currency is the U.S. dollar (USD), while its functional currency is the Swiss franc (CHF)[61][63] - Significant estimates and judgments are used in revenue recognition, capitalized software development costs, share-based compensation, and other areas[65] Note 3. Segment reporting The company operates as a single segment, with revenue geographically diversified across France, Italy, the United States, and Spain, while most non-current assets are in Switzerland - The company operates in a single operating segment[89] Revenue by Customer Location (in USD thousands) | Country | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | France | $7,405 | $6,060 | $5,874 | | Italy | $6,124 | $2,994 | $3,150 | | United States | $3,944 | $2,636 | $1,989 | | Spain | $3,765 | $2,356 | $2,105 | | Other | $19,212 | $14,354 | $12,240 | | Total revenue | $40,450 | $28,400 | $25,362 | - As of December 31, 2021, the majority of non-current non-financial assets ($29.0 million out of $35.9 million) were located in Switzerland[90] Note 4. Revenue Revenue, primarily from the SOPHiA platform, grew to $39.5 million in 2021, with significant judgment required for bundled arrangements using the residual approach for analysis SSP Revenue Streams (in USD thousands) | Revenue Stream | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | SOPHiA platform | $39,465 | $27,221 | $23,710 | | Workflow equipment and services | $985 | $1,179 | $1,652 | | Total revenue | $40,450 | $28,400 | $25,362 | - Significant judgment is required to determine the stand-alone selling price (SSP) for each performance obligation, with the company using the residual approach for analyses in bundled arrangements as their SSP is not discernible from past transactions[91][108] - Deferred contract revenue brought forward as of January 1, 2021, was $2.9 million, of which $3.0 million was recognized as revenue during 2021[114] Note 6. Operating expense Total operating expenses significantly increased in 2021, driven by higher employee benefit expenses ($53.8 million) and share-based compensation ($8.5 million), with General & Administrative costs being the highest Operating Expenses by Nature (in USD thousands) | Expense Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Employee benefit expenses | $(53,802) | $(36,732) | $(27,237) | | Share-based compensation | $(8,514) | $(1,359) | $(717) | | Professional fees | $(11,318) | $(5,371) | $(5,357) | | Raw materials and consumables used | $(9,650) | $(3,843) | $(3,180) | | Total | $(112,047) | $(65,694) | $(57,633) | Employee Costs by Function (in USD thousands) | Function | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Research and development costs | $23,899 | $16,109 | $10,622 | | Selling and marketing costs | $21,659 | $12,085 | $10,579 | | General and administrative costs | $25,131 | $16,880 | $10,244 | | Total | $70,689 | $45,074 | $31,445 | Note 8. Finance expense, net Net finance expense decreased to $2.0 million in 2021, mainly due to a reduction in foreign exchange losses, despite a $1.4 million loss on derivative revaluation Finance Expense, Net (in USD thousands) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total interest expense | $(658) | $(840) | $(976) | | Derivative fair value (losses) | $(1,444) | $(384) | $(98) | | Foreign exchange gains (losses), net | $64 | $(2,710) | $(354) | | Total finance income (expense), net | $(2,018) | $(3,838) | $(1,342) | - The derivative fair value losses relate to the revaluation of a success fee associated with a loan, which was settled in 2021[132] Note 9. Income tax The company reported an income tax expense of $168 thousand in 2021, holding $29.3 million in unrecognized deferred tax assets, primarily from $202.4 million in NOL carryforwards - Total income tax expense was $168 thousand in 2021, a shift from a $1.9 million benefit in 2020[142] - As of December 31, 2021, the company had unrecognized deferred tax assets with a tax effect of $29.3 million, primarily from $202.4 million in gross net operating loss (NOL) carryforwards[145] - The company determined it was not probable that all deferred tax assets will be realized in Switzerland but has recognized deferred tax assets in France, the UK, the US, and Brazil[146] Note 17. Intangible Assets Net intangible assets increased to $15.7 million in 2021, comprising goodwill, purchased software, and $5.7 million in capitalized internally developed software costs, with no impairment recorded Intangible Assets, Net Book Value (in USD thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Goodwill | $8,298 | $8,598 | | Purchased software | $1,658 | $2,182 | | Capitalized internally developed software costs | $5,717 | $2,502 | | Total intangible assets | $15,673 | $13,282 | - The company capitalized $3.9 million of internally developed software costs in 2021, compared to $2.4 million in 2020[179][181] - Goodwill was tested for impairment by comparing the company's market capitalization ($900.4 million) to its net assets ($275.4 million), and no impairment was recorded[183] Note 18. Leases Right-of-use assets and lease liabilities significantly increased to $11.3 million and $13.1 million respectively in 2021, driven by new office leases in Switzerland and Massachusetts - Entered into two significant new office leases in 2021: a 120-month lease in Rolle, Switzerland, and a 40-month lease in Boston, Massachusetts[191][192][194] Lease Balances (in USD thousands) | Balance Sheet Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Right-of-use assets | $11,292 | $3,767 | | Lease liabilities | $13,059 | $3,919 | Note 22. Post-employment benefits The net pension liability for defined benefit plans decreased to $4.5 million in 2021, with key actuarial assumptions including a 0.30% discount rate for the Swiss plan Defined Pension Plan Funded Status (in USD thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Present value of defined benefit obligation | $(17,889) | $(15,938) | | Fair value of plan assets | $13,436 | $10,780 | | Net pension liability | $(4,453) | $(5,158) | - The company has a funded defined benefit plan in Switzerland and an unfunded plan in France, with the Swiss plan fully reinsured with Swiss Life[210][211] - Key actuarial assumptions for the Swiss plan in 2021 included a discount rate of 0.30% and an expected salary increase of 1.25%[218][219] Note 23. Share-based compensation Share-based compensation expense sharply increased to $8.5 million in 2021, driven by the new 2021 Employee Incentive Plan which granted 1.6 million options and 290,407 RSUs - Share-based compensation expense recognized in the statement of loss was $8.5 million in 2021, a significant increase from $1.4 million in 2020[124][253] - A new plan, the 2021 Employee Incentive Plan (2021 EIP), was launched in June 2021, under which options and Restricted Stock Units (RSUs) can be granted[242] - In 2021, the company granted 1.4 million options under the 2019 ISOP and 1.6 million options under the new 2021 EIP, additionally, 290,407 RSUs were granted under the 2021 EIP[248][250][256] Note 24. Borrowings The company had no outstanding borrowings as of December 31, 2021, having repaid all loans, including $0.5 million Swiss COVID and $0.8 million U.S. PPP loans - Total borrowings were reduced to zero as of December 31, 2021, down from $3.3 million at the end of 2020[258] - During 2020, the company obtained several COVID-19 relief loans, including a $0.5 million loan in Switzerland and a $0.8 million PPP loan in the U.S[261][262] - The $0.8 million PPP loan was officially forgiven in February 2021[263] Note 26. Initial Public Offerings In July 2021, the company completed its Nasdaq IPO, raising $211.7 million net, supplemented by a $19.6 million private placement and $8.5 million from a greenshoe option - Completed its IPO on the Nasdaq on July 27, 2021, selling 13 million shares at $18.00 each, for net proceeds of $211.7 million[271] - A concurrent private placement of 1.1 million shares to an affiliate of GE Healthcare raised net proceeds of $19.6 million[272] - The underwriters' greenshoe option was partially exercised, resulting in the sale of an additional 519,493 shares and raising $8.5 million in net proceeds[273] Note 30. Financial instruments and risks The company's financial assets totaled $272.3 million and liabilities $35.8 million in 2021, with significant exposure to foreign currency risk, particularly from USD/CHF exchange rate fluctuations Financial Instruments Summary (in USD thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total financial assets at amortized cost | $272,345 | $104,692 | | Total financial liabilities | $35,768 | $18,635 | - The company manages credit risk by dealing with investment-grade financial institutions, with the highest exposure to a single counterparty for cash and deposits being $115.0 million as of December 31, 2021[305][306] - The company is exposed to significant foreign currency risk, where a 10% increase or decrease in the USD/CHF exchange rate could impact loss before tax by approximately $19.5 million[312] Note 31. Capital management The company's capital management aims to maximize shareholder value, supported by a strong liquidity position of $193.0 million cash and no outstanding debt as of December 31, 2021 - The company's main objective for capital management is to maximize shareholder value[317] - As of December 31, 2021, the company held $193.0 million in cash and cash equivalents and had no outstanding debt[318] - The Board believes the company has sufficient financial resources to operate for at least the next twelve months[319]