Good morning, welcome to the SOPHiA GENETICS first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then 1 on your telephone keypad. To withdraw your question, please press Star then 2. Please note this event is being recorded. I would now like to turn the conference over to Katherine Bailon, Head of Investor Relations. Please go ahead.
Good morning. Thank you for joining us on SOPHiA GENETICS' first quarter fiscal 2023 earnings call. My name is Katherine Bailon. I am the head of investor relations at SOPHiA GENETICS. Joining me today are Dr. Jurgi Camblong, 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 U.S. Federal securities laws. 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 Form 6-K on file with the SEC.
Except as required by law, SOPHiA 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 broadcast, May 9, 2023. This presentation includes non-IFRS financial measures. These measures are calculated by management and do not have any standardized meaning under IFRS. 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 this 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. With that, I'll now turn it over to Jurgi.
Thank you, Catherine, and good morning, everyone. We appreciate you joining us on our call this morning. I am pleased to share that our first quarter results came in strong with total revenue for the first quarter growing 37% year-over-year on a constant currency basis after adjusting for COVID-19 related revenues. We delivered this growth while maintaining our fiscal discipline, resulting in meaningful expense reductions from the prior year periods. I am equally pleased to tell you that our operating loss on an adjusted basis was $16.2 million, an improvement of $4.8 million for the first quarter of 2022. On today's call, I will start by reviewing our progress in the first quarter as it relates to our strong business momentum and the continuous customer adoption of our market-leading platform.
I will then turn it over to Ross Muken, our chief financial officer and chief operating officer, to share our financial results for the period in more detail and our outlook for the remainder of 2023. Then we will end by taking your questions. Let me start with a review of the first quarter highlights. Momentum in our business continues to be robust on a global basis. We added 18 new logos in Q1. Of our more than 750 customers, 437 are core genomics customers that utilize our platform regularly through our dry lab, bundle, and integrated access modes. Our strong Q1 performance is demonstrated by very robust usage numbers across the board.
For the first quarter of 2023, analysis volume across our core genomics customers, a close proxy for patients, was 77,819, an all-time high, up 9% sequentially and up 18% year-over-year. When excluded COVID-19 related volumes, platform analysis volumes were 75,868 for the first quarter of 2023, up 12% sequentially and up 25% year-over-year. We ended the quarter at nearly 30,000 analysis a month, indicating that we are well on our way to being the leader for technology-agnostic software for genomic and multimodal analysis. I will now highlight some areas of particular strength in the quarter. In EMEA, France, a country with one of our largest and longest-standing presence, continues to demonstrate strong growth.
Customers such as Institut Gustave Roussy in Paris, among the top cancer centers in Europe, and arguably among the top specialized hospitals in the world for the treatment of rare and complex tumors, are expanding their use of our platform. Institut Gustave Roussy began working with SOPHiA GENETICS in 2017 with a vision to offer patients personalized treatment. They will now be using the SOPHiA DDM capabilities for the analysis of over a dozen cancer-related applications, including solid tumors, hematological and hereditary cancers, establishing our platform as a core genomic analytics platform. We also recently established for Gustave Roussy a new bi-directional communication link from SOPHiA DDM directly to their database. This will enable them to facilitate more efficient interpretation of their research data and help to further grow the internal knowledge database of Institut Gustave Roussy.
In the APAC region, I would highlight India, which has usage growth well ahead of our company average in the quarter, and well ahead of our expectations. During the quarter, Krsnaa Diagnostics, a central lab, went live on SOPHiA DDM technology. Krsnaa Diagnostics is India's largest diagnostic service provider in radiology and pathology. They will be expanding their current next-generation DNA sequencing offering by adopting SOPHiA DDM for their hereditary cancer needs. In addition, we announced that Unipath, a leading diagnostic brand in India, has launched HRD testing capabilities with SOPHiA DDM. The SOPHiA DDM HRD solution will enable Unipath to retain full ownership of their data, saving time and expense while offering comprehensive genomic insights powered by deep learning algorithms. In LATAM, Brazil is a country that delivered usage growth in the quarter well above the company average.
In this region, I would highlight for you Dasa as an example of an expanding customer within our land and expand strategy. Dasa is the largest diagnostic company in Latin America and the largest integrated healthcare network in Brazil, serving approximately 10% of the Brazilian population. Dasa has been longstanding customer and partner of SOPHiA GENETICS. A year ago, Dasa launched HRD testing capabilities on SOPHiA DDM. We are pleased to tell you that just one year after implementation, Dasa has now analyzed over 2,000 samples using HRD on SOPHiA DDM, a true testament of the democratization of data-driven medicine. Next, turning to non-run customer momentum, I would like to highlight a recent win at the University of Maryland Medical Center, UMMC, who selected SOPHiA DDM to enhance their capabilities around rare disease detection through the combination of whole exome plus mitochondrial DNA sequencing.
Thanks to SOPHiA DDM, UMMC can maintain their samples in-house and, using our artificial intelligence and machine learning capabilities, find a more efficient way to analyze and interpret data, further developing their expertise in rare diseases. Looking at the first quarter from the standpoint of application areas on the SOPHiA DDM platform, in rare disease, we saw whole exome sequencing data volumes grow above company average year-over-year, which supports the broader view that as sequencing costs continue to grow, customers will shift to larger panels at higher volumes. We are encouraged that this trend supports increased value for those that enable large-scale data production within an increasingly complex workflow. In cancer applications, hereditary cancer and solid tumors grew volumes above company average, and some newer areas like HRD and liquid biopsy grew analysis volumes in triple digits.
On the biopharma front, we continue to be very active in our engagement with top biopharma companies. The more we discuss our capabilities with the top 20 players, the more we realize their need to have real-world and real-time data. At the recent American Association for Cancer Research, AACR meeting, we noted high interest in new applications and particular focus on MSK-ACCESS liquid biopsy, not the last of which included discussions around DX and global commercial partnerships to support upcoming drug launches with several top 20 pharma. At the AACR meeting, we gave a talk on the decentralization and collective intelligence in precision medicine, highlighting the benefits of having a harmonized platform approach to promote the greatest reach in the 70-plus countries we serve, while simultaneously collecting key data in real-time and real-world that can benefit decision-making.
Interest in our multicentric DEEP-L ung-IV study was high, particularly with respect to multimodality and predictive analytics, with discussions at the conference looking to apply a similar approach but beyond lung and into additional indications such as prostate and breast cancer. As you know, SOPHiA GENETICS started 12 years ago on the clinical side, and clinical has been our primary customer focus to date. Biopharma is a new class of customer for us, and while other informatics players have approached the market launching initially with biopharma, we feel confident about our approach and its uniqueness and value. As we introduce biopharma to SOPHiA GENETICS and provide them this unique pathway to anonymize real-time and real-world data not previously available, we believe in our differentiation and its likely success over time.
On a related note, we are very much looking forward to attending ASCO, the Conference of the American Society of Clinical Oncology, next month in Chicago, where SOPHiA GENETICS technology will be featured in several poster sessions. Of note, our collaborators at the Centre Léon Bérard in Lyon, France, will provide an important update on the clinical validation of HRD using samples from the PAOLA-1 study, which was a study supporting the approval of AstraZeneca's PARP inhibitor, olaparib, in the first line treatment for ovarian cancer. Additionally, SOPHiA will be showcasing exciting new results in the multimodal analytics space as applied to kidney cancer, and highlighting how our proprietary multimodal capabilities enable next-generation sequencing stratification of patients according to risk of progression. We expect this work may open many promising avenues for further collaborations with biopharma companies.
Taking a step back, I would like to touch on our continued scientific innovations. On this topic, I would like to review for you today a recent publication we made, which was accepted in Translational Medicine. It involves the topic of molecular barcoding, a genomics technique that allows labs to detect mutation signals with low tumor content, which is becoming quite popular in applications such as somatic genomic profiling or MRD tracking. Its benefits in different application context is not well studied. At SOPHiA GENETICS, we use DNA sequencing data generated by molecular barcoding from various types and quantities of input material such as fresh frozen DNA, formaldehyde treated DNA, and cell-free DNA to evaluate the performance of mutation detection in different clinically relevant contexts. We have demonstrated that benefits of applying molecular barcoding systems are not uniform across different genomic applications.
We are excited that our work has been accepted in the Journal of Translational Medicine, a peer review journal, and will aid clinical labs to understand better their experimental settings and how such will affect analytical performance. In light of this work, we also established a proprietary molecular barcoding system called CUMIN, that encodes the barcode in a novel way and is combined with probability-based variant calling algorithms. This technology has already been incorporated into our offering, notably liquid biopsy, and will facilitate the detection of mutation signals with low tumor fraction. Now, moving from scientific aspects of our business to technology, I think it is worth highlighting that last month we attended the HIMSS Conference, which is perhaps the most influential health information technology event of the year, a gathering of approximately 40,000 attendees.
This year, we were thrilled to attend alongside Microsoft, where we shared a booth and co-hosted a learning lunch. At HIMSS, development in generative AI and LLM were highlight themes in the provider space. Large language model is a type of artificial intelligence algorithm that uses deep learning techniques and massively large data sets. Our new collaboration with Microsoft will leverage these same technologies as well as conversational AI technologies from Microsoft 2022 acquisition of Nuance to create a scalable approach to integrate various structured and unstructured multimodal data to train and test the AI in our CarePath module. Ultimately, the goal is to enable the collection and sharing of large data sets historically found not just within the EMR, but also in doctor notes, as well as other unstructured formats.
With all this momentum, you can sense what makes us super excited about the investments we're making today and their potential in the future. Allow me to wrap up my section by telling you about two honors that we were bestowed on the company since we last spoke. In March, SOPHiA GENETICS was named to Fast Company's prestigious annual list in their World's Most Innovative Companies for the 2023. In April, SOPHiA GENETICS joined the ranks of Actelion and Lonza in accepting the Swiss Biotech Success Story Award for our outstanding contribution as a leader in data-driven medicine.
To conclude my section, I feel as excited today as ever that SOPHiA 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 contribute meaningfully to patient care and patient outcomes, insights that contribute meaningfully towards our customer success, and that deliver outstanding performance of SOPHiA GENETICS in 2023 and beyond. Now I will turn the call over to Ross to discuss our financial performance in more detail.
Thank you, Jurgi, good morning, everyone. I'm pleased to share that we started 2023 on a strong note, continuing our commitment to sustainable growth. Turning to the financials. Total revenue for the first quarter of 2023 was $14 million, compared to $10.9 million for the first quarter of 2022, representing year-over-year growth of 29%. Constant currency revenue growth was 34%, and constant currency revenue growth excluding COVID-19 related revenue was 37%. Platform analysis volume, including volumes from our integrated access customers, was 77,819 for the first quarter of 2023 compared to 65,694 for the first quarter of 2022. The 18% year-over-year growth was attributable to the strength of our core platform analysis volume, offset by the expected continued decline of our COVID-19 related analysis volume.
Excluding COVID-related volume, platform analyses grew a healthy 25% year-over-year in the period. Core genomic customers grew to 437 as of March 31, 2023, up from 426 in the prior year period. This included 14 new routine customers in the quarter. Of note, our definition of core genomic customer now includes all three access modes, including integrated access versus only a bundle and dry lab previously, and is a better representation of DDM land adoption. Annualized revenue churn rate was 4% during the first quarter of 2023, in line with our expectations. Net dollar retention for the quarter improved sequentially on a reported basis to 107%. Constant currency net dollar retention, excluding COVID-related revenue, was 118%.
Strong NDR and a healthy level of backlog continue to provide us with a high level of revenue visibility going forward. Gross profit for the first quarter of 2023 was $9.7 million, compared to gross profit of $6.7 million in the first quarter of 2022, representing year-over-year growth of 44%. Gross margin was 69% for the first quarter of 2023, compared with 62% for the first quarter of 2022. Adjusted gross profit was $10.1 million, an increase of 47% compared to adjusted gross profit of $6.9 million in the first quarter of 2022. Adjusted gross margin was 73% for the first quarter of 2023, compared to 64% for the first quarter of 2022.
Of note, in the period, we did again benefit from an expected one-time credit of approximately $300,000 related to our previously disclosed cloud optimization efforts. Overall, I remain encouraged by our progress on gross margin expansion and am increasingly confident in our medium-term goal of sustaining adjusted gross margins in excess of 70%. Total operating expenses for the first quarter of 2023 were $29 million, compared to $31.7 million for the first quarter of 2022. Adjusted operating expenses were $26.3 million, compared to $27.9 million in the first quarter of 2022. Headcount, our most significant expense, was down versus the prior year, but remained relatively flat sequentially. We continue to make progress on containing our discretionary expenditures and remain hyper-focused on maximizing capital efficiency while sustaining targeted growth levels.
Turning to operating loss for the first quarter of 2023, it was $19.3 million compared to $25 million in the first quarter of 2022. Adjusted operating loss for the first quarter of 2023 was $16.2 million compared to $21 million for the first quarter of 2022. Cash and cash equivalents were approximately $162 million as of March 31, 2023. Turning to our 2023 outlook. Based on our strong start to fiscal year 2023, we are reiterating all elements of our annual guidance. We continue to expect reported revenue growth to be at or above 30% in 2023. Constant currency revenue growth, excluding COVID-19 related revenue for 2023, is expected to be between 30%-35%, in line with our previously highlighted long-term expectations.
Of note, we continue to expect a headwind to 2023 reported revenues of approximately $1 million related to a ceasing of COVID-19 related contribution, which was minimal in the first quarter. This will equate to a headwind of approximately 19,000 analysis to reported volumes. We would note that exchange rates remain highly volatile, but at the moment, we anticipate a modest impact to reported results, albeit I would note that they have improved slightly from our fourth quarter call. Following on strong cost performance continuing in the first quarter of 2023, SOPHiA GENETICS expects 2023 operating losses to be below 2022 levels. With that, I'd like to turn the call back over to Jurgi for the closing remarks before we take your questions.
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. SOPHiA'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 competing returns and shareholder value. 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, next month, we are attending the William Blair Growth Stock Conference in Chicago. 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.
We will now begin the question and answer session. To ask a question, you may press Star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star, then two. Once again, that was Star, then one to ask a question. At this time, we will pause momentarily to assemble a roster. Our first question will come from Tejas Savant of Morgan Stanley. Please go ahead.
Hey, guys. Good morning, and thanks for the time here. Maybe I'll start with one, Ross, or perhaps, Jurgi, you can chime in as well. I think you did a 30,000 sort of monthly run rate here in March. I think that was, that compares to about 24,000 at the end of the last quarter. Really nice tick up there. You've kept the guide sort of unchanged here. Just wanted to get some color around the degree of, like, conservatism in light of the recent momentum here. Ross, I think in your prepared remarks, I caught you mentioning something about a change in volume definition. Does that sort of, like, play into this sort of monthly run rate dynamic at all?
Any color would be helpful. Thank you.
Yes, good morning, Tejas, and thanks for the questions. Indeed, you are touching something we're very excited about. First, no, there was no change on the definition for the volume of analysis. The change in the definition was for the number of recurring platform customers. On the volume of analysis, indeed, we end up with a high demand in Q1, almost 30,000 analysis, to your point in March. And all in all, 77,918 analysis, including COVID-related analysis in Q1, which is basically 18% up versus Q1 2022. Even more important, I would say Tejas, 9% up versus Q4 2022. I think the demands, Tejas, really comes from hospitals and labs that are adopting bigger sequencers, right?
I've been traveling recently as well in Canada, in Montreal and in New York, and it was pretty fascinating to see how hospitals are moving, if we refer to the Illumina sequencers, you know, beyond NextSeq to NovaSeq. And I think this is primarily now driving higher volume of consumption as well as the consumption of larger gene panels. When it comes to the guidance, maybe I will leave Ross answer to you
Thanks, Tejas. In terms of just the start to the year and the full year guide, I would say, obviously we're encouraged by demand in general. You know, we had very strong bookings all throughout last year, and obviously, as we've talked about, that gives us a good degree of visibility. I would say relative to our own expectations, we did come in a bit above in Q1 on the volume side. It was strong overall, and we did close the quarter quite well. It is a consumption-based model, I will remind you. You know, it's not as if you get up to that run rate and then you're all of a sudden catering at that.
I think, you know, we'll expect some variability, particularly in the third quarter, where you typically see in the summer months a bit of a dip. Overall, we're very encouraged by the start. In terms of the definitional change, you know, there was a slight benefit, but it was de minimis. It integrated as a very, very small percent of our business, less than 1%. Not much change there. This is truly, I would say, underlying volume strength. Again, if you look globally at where we're winning some business in some of the new countries, and I'm sure Jurgi will talk about it as well, you know, some of these are our initial starts are quite high volume.
We're very encouraged overall around sort of the environment and obviously look forward to be able to continue to deliver on our results for the year. Given it's Q1, we obviously decided not to make any formal change. You know, we obviously aim to be able to continue to deliver on what we have said. Ideally, if the underlying volume environment continues above our own expectation, we will obviously update you. At this point, I think it's prudent to leave it as is.
Got it. That, that's helpful. Actually it's a nice segue into my next question. Jurgi, you highlighted a couple of sort of marquee wins in India over here, 1 with Unipath and the other with Krsnaa Diagnostics. How big is that opportunity for you over the medium term? To what degree are you seeing cross-selling sort of kick in among your existing customers there? You highlighted Unipath being more HRD. Are they starting to adopt like some of the other tests as well? Same question for Krsnaa and your other existing customers.
Yes. Thanks for that question, Tejas. First, we're very proud, right? Our tagline is democratizing data-driven medicine, we're very proud to help as well, indeed marquee names, but in countries which are other than the U.S. and Europe. As a reminder, we started in India signing Tata Memorial Hospital, so another marquee name, with whom we are working on multiple applications, but we started with them on solid tumor testing and a bit similarly indeed, with Unipath and Krsnaa Diagnostics. These are customers that we have onboarded on our first application. For one of them, it has been on HRD testing, which is, I think, an application where now we can tell we have unique capabilities given the adoption we've been adding since a year time.
To your point, yes, we have as well upselling opportunities into these centers as we have in any. Just to remind everyone who is listening to us, our model is really land and expand. We penetrate an account most of the time with one application, such as HRD. Once they start adopting our platform, this gives us the opportunity to expand beyond other applications. Along those lines, beyond India, where we are actually very enthusiastic, we are as well very happy with the performance of some of the historical centers that we have recently expanded. Dasa that we've been talking a lot about, and now we've been announcing and celebrating the fact that over the last 12 months, we've been helping them on doing 2,000 analysis on HRD.
As well, another marquee name in Europe, maybe the most sophisticated cancer center in Europe, Institut Gustave Roussy, with whom now basically we work, that we help them across all the cancer applications they cover and for which they produce, genomics data. Very interested, and I would say very excited about the penetration in India. I think this will give us ideas as well eventually, to go in the future to other similar markets.
I would just add, you know, one of the interesting dynamics is obviously we've seen adoption there, both of central labs as well as academic medical centers. I think that's quite encouraging for the market. We also recently did an event with our partner GE there, which I would say was quite good in terms of broad branding across a quite a number of hospitals. Obviously, you know, it's a very large country in terms of population. They've come a little bit later, I would say, in Asia Pac to the sequencing game, but obviously they're bringing huge population. Even at lower price points, it's a really nice long-term opportunity for us. Again, one of many across the globe where we're seeing really nice adoption.
Got it. Jurgi, can you give us a quick update on the Agilent and QIAGEN partnerships that... I mean, they're still sort of early days there, but just curious as to what you're seeing in terms of, you know, opening up the opportunity among new customers for you and so on.
Yes. Look, thanks, Tejas. Indeed, we announced these partnerships, which are important partnerships for our Q4 results, right? In March?
April.
April, sorry. In April. Since then, we've been very nicely working with both companies. We were revising the partnership yesterday in our executive team meeting. We are being able to create a number of opportunities with existing and new customers in the U.S., in Germany in particular, by combining our platform with their consumables. We're very excited about those partnerships, and we believe that, to your point, this is early, if we are successful in the first opportunities we work on together, that this should benefit as well to SOPHiA in being able to land new customers and continue to grow significantly the number of analyses, quarter-on-quarter.
I would just add, you know, the engagement up and down those organizations from the field all the way up through the C-suite has been great and really speaks, I think, to sort of the evolution of the market where obviously everyone realizes data and analytics or where we play is an incredibly important piece of the puzzle, particularly as sequencing costs are coming down and volumes are likely to go up. It's great to have these very large and significant organizations, right, that have quite a significant commercial presence and great product portfolios, recognize that we are a very strong partner to them and can help in sort of that market evolution.
Got it. One final one on the gross margin side for you, Ross. I mean, I think you did 73% non-GAAP in the quarter, you know, nicely above your long-term goal there. Just curious as to, you know, any context you can share in terms of, you know, how you're thinking about those long-term targets. I mean, you probably don't wanna raise them today on this call, but any color on that would be helpful.
Thanks for calling this one, Tejas Savant. This is a result of a lot of discipline. Maybe taking a step back, right, we're being able to grow year-on-year on constant currency and excusing COVID-19 at 37%, while in the meantime, we're basically able to improve our gross profit year-on-year by 47%, right? I think definitively this highlights the discipline we added in being laser focused on the cost side and basically being pretty selective targeted in the investments we're making. We're very proud with this gross margin. Big improvement indeed. Just as a reminder, the 73% on a gross margin adjusted basis compare to 64% in Q1 2022.
Kudos to our teams at SOPHiA GENETICS because they have been working very hard to be, I would say, even more efficient than we have ever been. When it comes to the guidance, I will leave it to Ross Muken.
Obviously really impressed by the team's execution here. It's been a big focus, as you know, right, as we're trying to push toward profitability. There's a number of levers, right? You obviously have revenue growth, you have your incremental gross margin, and then you have OpEx controls. We've been trying to balance all three. I think here we're really proud of the gross margin execution. You know, on the technology side, our partnership with Microsoft and our efforts around architecture, I think are really paying off there. I think we still have more room to go per, you know, per sort of GB in terms of cost of hosting and cost of storage.
You know, the other dynamic that's happening is there is a shift, and we'll talk about it, I'm sure, later, to larger panels, to whole genome sequencing. We're also on that path to kind of preparing for a bigger explosion of data. In that, you know, we are ensuring we are future-proofed in terms of where all of these different technologies are going. Frankly, some of this is just good old-fashioned, you know, rolling up your sleeves and saving money and execution and labor absorption and all of the things that drive gross margins in the software business. I'm really proud. As you mentioned, we're not gonna be changing the long-term guide, but I do think obviously our confidence in sustaining, let's say 70% plus gross margin continues to go up.
Obviously as at a later date, as we take a look at it, we'll have a formal update for you on sort of the targets. Certainly you would think relative to where a software business should operate, you know, we're getting closer to, you know, what you would normally expect from a consumption-based business. Frankly, if you compare us to some of the players on the technology side, pure tech players, we're actually now above those levels. I feel really good about our discipline and execution.
Got it. Thanks, guys. Appreciate the time.
Thank you to Jeff.
The next question comes from Julia Qin of J.P. Morgan. Please go ahead.
Hello. Thank you for taking the question. This is Marta, Julia. I have two quick questions. Maybe you could discuss macro headwinds you experienced in the quarter. I know towards the end of the call you mentioned that FX has traded better. What are you seeing perhaps in terms of customer funding constraints, and are there any differences that you're seeing geographically? Thank you.
Yes. Thank you, Marta. First I would start highlighting that there is demand everywhere, right? When it comes to the macro level, but in genomics, right? From the recent visits I had personally in the U.S. and in Canada or in Europe, it's obvious that the demand is growing. I would say from 1 out of 2 meetings we're doing, it's clear that there is an opportunity for SOPHiA to either expand the usage of the platform for a new application or otherwise land the platform with a new customer. In that sense, I would say at the macro level, when it comes to clinical genomics, huge excitement.
A lot of excitement as well on the biopharma side, where I would say, there is a growing demand on getting access to tech capabilities that are combining multimodal offerings, so genomics, radiomics, and clinical in particular. Beyond that as well, a lot of excitement on being able to work with a tech player that can get access to real time and real world data through a network of 750 plus hospitals and labs in 70 countries. Maybe on the macro level, when it comes to, you know, the currencies and so on, I will leave, Ross comment.
Yeah. Obviously, for us, just given the ex-U.S. exposure, currency movements, which I would say have been quite volatile, continue to bump around. I wouldn't say it's had a effect on demand. It's more on a reported basis. Again, just sort of something outside of our control. Certainly, as we think about sort of the remainder of the year, there's no reason for us to think, you know, you're going to see anything different than sort of what we saw in the recent period, which is strong underlying demand, but then quite a bit of noise on the reporting side.
I will say, you know, at the customer level, we certainly see economic pressures, right, in certain parts of the world, you know, particularly in the U.S., for a number of the customers on the labor side. Labor markets for a lot of our folks are still quite tight, or some of the larger central lab players are obviously moving to cut costs. I would say in some of that, frankly, for us, it's a positive, right? Whether that means they need us to help them with menu expansion or with cost savings or on the COGS side. We've had a lot more of those conversations with a number of different players. Frankly, the underlying dynamic for the industry overall, you know, at least as we can see, is still quite good.
You know, we're certainly though always prepared for a change in the environment, right? We're in the field all of the time. We obviously have a very large presence globally, and so we're, you know, we're small, but our ears are to the street. We don't know much more in terms of how, you know, whatever happens over the remainder of this year economically will sort of play out. I would say for us, we're prepared for any environment. We're also thankfully in a business where the visibility remains quite good.
Overall, you know, while not everything plays out exactly as you want, we tend to be able to also attempt to pull different levers to make sure we're hitting our results, and so we're gonna obviously continue to attempt to do that for the remainder of this year.
Great. Thank you. I guess the second question, more on the modeling front, how should we think about revenue and gross margin pacing for the rest of the year? Any color you can share there? Thank you.
Yes. Thank you, Marta. Indeed, that as well answer to Tejas, we're very proud about the gross margin performance for Q1, which was 73% on an adjusted basis versus 64% in Q1 2022. This has been the result of definitively growing the business 37%, sorry, year-on-year on constant currency excluding COVID-19 versus Q1 2022. This has been as well the result of a lot of focus on targeted investments as well as continuous improvement on better controlling costs and in particular, our indirect costs. Again, kudos to our teams. I think this is a strong quarter, and we need to recognize all the hard work of our SOPHiANs.
Beyond that, Ross, I don't know if you want to give some color on how you see that evolving in the future.
Right. Obviously, our business being consumption-based, you know, it tends to follow a bit of what you would think of as the utilization cycle, which tends to be sort of building over the course of the year, a seasonal dip in 3Q, then I would say a bit stronger results, in the fourth quarter. This is similar to what we've seen in the past. I would say this year, the one caveat I would give is just given some of the timing of some large contracts coming on, I would expect the third and fourth quarter to be even a bit stronger than is typical for us just in terms of overall cadence.
Overall, I would say we follow on an analysis basis, the more of the normal sequencing of our year. On the gross margin side, we did call out about a $300,000 benefit from, you know, the cloud side in Q2 that will cease sorry, in Q1, that will cease in Q2. You know, you will see now sort of, I would say, the new run rate of gross margins in the second quarter for us that we hope to obviously build off of, but certainly some degree of variability in either regional demand or in product demand can always influence that number.
I'm not gonna give you an exact amount for 2Q or the remainder of the year, but I would say, you certainly wanna pull out that $300,000 benefit as you think about Q2, and then again, think about that being sort of the new rebasing for where we are as we now come out of this period where we spent quite a bit of energy on gross margin expansion.
That's very helpful. Thank you.
Thank you, Marta.
The next question comes from Dan Brennan of TD Cowen. Please go ahead.
Hey, good morning. This is Kyle on for Dan. Thanks for taking the questions here. Maybe starting just the composition of the guidance, can you just remind us what is implied in your guide for volume and pricing this year? Can you provide any color on what the average revenue per platform customer was in 1Q? Thank you.
In terms of the guidance, right, we're focused really on that 30%-35% ex-COVID growth. I would say there, we're still expecting volumes to be in the high teens, the remainder to obviously come from ASP and I would say mix in pharma, right? That sort of contribution today there is really no change to that, even though obviously we had better than anticipated volume growth in the first quarter. Certainly, as we think about our business, again, it is consumption-based, there could be timing elements, which is for us, why, again, given we're in Q1, we wanna remain conservative on the outlook.
Again, we're constructive with how things have kind of developed in terms of the full year picture. In terms of the other portion, I don't know, Jurgi, if you have anything else you wanna add there, but for me, you know, we generally feel quite confident with what we've communicated.
Got it. Maybe just an update on the pharma partnerships. When do those become more meaningful? Is that something that happens, you know, way in the back half of this year and into 2024? You know, when should we see a notable contribution?
Yes. As you remember, Kyle, we started our journey by first building our platform, serving customers which are in the clinical space, right? This is because we wanted to own a network of connected hospitals and labs that would be computing real-time, real-world data that are then being computed through the platform and our algorithms, and on which basis we're being paid as we compute the data. As a second, we knew that when we would have been able to build such a network, this would be extremely valuable to help patients working with the biopharma companies pre- and post-approval of drugs. So this has been a more recent market to us, but a market where as we're being, I would say, announcing a number of deals, we have been seeing great traction since a year now.
Maybe I will call two of the announcement we made last year and beginning of this year with Boundless Bio and AstraZeneca. These partnerships are being well executed. As you know, unlike our business on the clinical side, which is consumption-based and purely, if you like, based on the volume of data we compute, these type of partnerships are sometimes based as well on specific type of milestones where we need to deliver some objectives. We're basically getting access to the data might be a step, where computing data might be another step. What basically I'm telling you is that while indeed these opportunities and partnership we sign are being well executed, you should indeed consider that they will come rather towards the end of the year in terms of revenue recognition.
As a quick reminder, particularly relative to the pharma customer base, right? You know, as you remember, as we've reported previously, you know, ARPU had been around, let's say, $100K roughly. That's more indicative, I would say of what a clinical customer would look like. On the pharma side, you know, it's multiples of that, right? And many times, significant 7-figure or 8-figure even contracts potentially over time. With that, obviously start date, and sort of when they ramp is really important from a cadence perspective. You can imagine with, the visibility we have on the clinical business, obviously there we feel quite good, even though it's consumption based on how that will fall.
On the pharma side, we're still early enough where, you know, even a month or 2-month or 3-month change in start date will have a pretty material impact, quarter to quarter on sort of recognition. Again, overall, the contracts are quite visible. You know, in that's why I would say for this year, with some of the ramping, you do see a little bit more recognition of revenue likely in the second half of this year. That will continue in terms of some of those moving parts dependent on the pharma starts. Again, there as we have more pharma contracts, it will start to average out and will be less noticeable to you on the reported side.
Remember, we don't also, give analysis volume relative to pharma, and so you typically will see that as many of that is around data development, you know, on the ASP side. Just from a modeling standpoint, keep that, keep that point in mind.
I would add, Kyle, beyond the modeling side for the revenue recognition, which is definitively important and where I think you understand that, we have already these opportunities in the bag and we're executing them. Even more maybe important to highlight that, the demand on the pharma side continues to grow. I think the strategic offering of SOPHiA along the three D, which is from discovery to development to deployment all around data, is more and more understood. At ASCO, we already have a lot of activities that are being planned with the top pharma company to discuss about potential deals.
Got it. Thank you, guys.
Thank you, Kyle.
This concludes our question and answer session. I would like to turn the conference back over to Dr. Jurgi Camblong for any closing remarks.
Well, thank you all for joining us today. Q1 has been a very strong performance for SOPHiA, and I really would like to thank all the SOPHiANs who have been working very hard and being very disciplined, very passionate, so that our performance could be such. Stay tuned. We're going to be at the ASCO conference in beginning of June in Chicago. Following that, we will be as well at the William Blair conference, and so we will be very eager to meet partners and investors while we are in these conferences. Thank you so much again, and have a good day.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.