SOPHiA GENETICS (SOPH) Q3 2026 earnings review
SOPHiA GENETICS hospital sales accelerate, but testing margins still shrink
SOPHiA GENETICS, which makes software that analyzes patient DNA for hospitals and drug makers, grew faster while trimming its operating losses. Third-quarter sales rose 26% excluding currency swings as existing hospitals expanded their testing and new pharmaceutical deals went live. Chief executive Ross Muken pointed full-year sales to the top of the $94 million to $96 million plan, which by our math leaves fourth-quarter growth near 23% after currency headwinds.
| Constant-currency revenue growth | +26% +25% reported ($24.3M) |
|---|---|
| Net dollar retention | 118% 117% in Q2 and 108% a year ago |
| Adjusted EBITDA loss | $6.1M improved 31% from $8.8M a year ago |
| Full-year revenue outlook | Upper end of $94–96M range (up to 24% growth) |
⚖️ Verdict: 🟢 Bullish
The story got better because existing customers increased their spending rate to 118% after two flat quarters, and upfront customer cash balances stopped falling as AstraZeneca deals closed. Strict control over research and administrative overhead also brought the full-year loss target within reach. One caution: gross margin excluding one-offs slipped again to 72.8%, and legal bills plus payroll taxes kept nine-month cash burn above $32 million.
The question now is whether the 30 hospitals signed this quarter and the new drug-maker projects will turn into high-margin recurring revenue or keep weighing on unit costs. Optimists see blood-based cancer tests and companion diagnostics driving 20%+ growth through 2027, while skeptics point to shrinking gross margins and slow hospital onboarding. Fourth-quarter gross margin and the first 2027 outlook will tell.
🐂 Bull Case
Existing Hospital Accounts Spend 18% More
"Record analysis volume, strong performance in the U.S. market, and accelerating BioPharma momentum resulted in another excellent quarter as revenue grew 25% year-over-year," chief executive Ross Muken said. SOPHiA GENETICS sells SOPHiA DDM, software that hospitals and laboratories use to analyze patient DNA for cancer and rare diseases. Its net dollar retention (NDR), which measures how much existing customers spend compared to a year ago, rose to 118% from 117% in the second quarter, breaking a two-quarter plateau.
- Total DNA analyses on SOPHiA DDM: 118,000, up 19% from a year ago
- Liquid Biopsy blood-based cancer tests: 4,200 analyses, more than double a year ago
- North America revenue: up 45% from a year ago, with United States revenue up 41%
- Core genomics customers: 551 active institutions, up from 542 in the second quarter and 488 a year ago
Existing hospitals are adding new test types, so revenue grew 6 percentage points faster than test volume when excluding currency moves (25.6% vs 19.4%). The University of North Carolina added three disease modules, and a United States military medical center signed an expansion worth over $2 million a year.
What to watch: fourth-quarter U.S. test volume and customer additions when two major American health systems signed last year finish setting up their labs. A jump in live customers would show the backlog is turning into recurring revenue.
Drug-Maker Deals Lift Upfront Cash Balances
Beyond hospital testing, the Swiss health-tech company sells data and test-development services to drug makers (BioPharma). Muken said the firm closed three major pharmaceutical deals in the quarter. Those included a multi-year pact with AstraZeneca for two companion diagnostics (CDx), which are tests that match patients to specific drugs, and a project with another drug maker "to help identify which bladder cancer patients are most likely to benefit from a targeted therapy".
Those signings helped reverse a two-quarter drop in deferred contract revenue, which is cash customers pay upfront for work not yet delivered. That balance rose by $0.4 million from the second quarter to $16.1 million, up 60% from a year ago. Management still does not disclose how much revenue comes from drug makers or the dollar size of the AstraZeneca contracts.
What to watch: deferred contract revenue on the fourth-quarter balance sheet. Another sequential increase would confirm that new pharmaceutical deals are bringing in upfront cash faster than SOPHiA GENETICS recognizes older contracts.
Operating Losses Narrow on Slower Overhead Growth
SOPHiA GENETICS narrowed its quarterly loss before interest, taxes, depreciation, and one-off items (adjusted EBITDA) by 31% from a year ago to $6.1 million. Muken said the improvement is "bringing us closer to profitability and further demonstrating the highly scalable nature of our AI-native platform and business model". The company achieved this because it held research and administrative spending almost flat while sales grew 25%.
- General and administrative overhead: 61.3% of revenue, down 10.0 percentage points from a year ago by our math
- Research and development costs: 34.2% of revenue, down 7.3 percentage points from a year ago
- Selling and marketing costs: 43.6% of revenue, down 1.0 percentage point from a year ago
- Restated Q3 2025 adjusted EBITDA loss: $8.8 million, improved from the $10.2 million originally reported last year after adding back $1.3 million of payroll taxes on stock awards and $0.6 million of legal bills
What to watch: whether the full-year adjusted EBITDA loss lands inside the $29 million to $32 million target without further accounting changes. Hitting the middle of that range leaves a $6.4 million loss for the fourth quarter by our math.
🐻 Bear Case
Gross Margin Shrinks as Testing Costs Rise
While overhead fell as a share of sales, the direct cost of delivering tests and services grew faster than revenue. Reported gross margin slipped 0.6 percentage points from a year ago to 65.7%. Excluding the write-off of past software development costs, gross margin excluding one-offs dipped 0.3 percentage points to 72.8%, and is down 1.1 percentage points over the first nine months of 2026 to 73.3%.
That drop cuts against Muken's claim of a "highly scalable" platform and the company's start-of-year goal to expand full-year gross margin above 2025's 74.2%. By our math, direct cost of revenue excluding software write-offs rose 0.4 percentage points to 27.3% of sales, while software development write-offs added another 0.3 percentage points. Set-up work for pharmaceutical partners and fixed cloud-computing commitments are weighing on unit profitability.
What to watch: fourth-quarter gross margin excluding one-offs in the full-year report. A reading below 74% would mean the company missed its original annual margin expansion goal as lower-margin services and cloud bills grew.
Currency Shifts and Onboarding Delays Cap Fourth-Quarter Growth
SOPHiA GENETICS said full-year revenue will finish "at the upper end of its previously issued guidance range of $94 million to $96 million". Even at $96 million, fourth-quarter sales would reach $26.7 million by our math, slowing to 23.2% growth from 24.7% in the third quarter and 27.2% in the second. The company said strong performance is "partially offset by the impact of foreign exchange rate movements at the end of the third quarter, which, if sustained, would be a headwind to fourth-quarter revenue".
Onboarding lags also slow how fast signings turn into cash. The diagnostics group signed 30 new hospital customers in the quarter, including PathGroup in the United States and HBIOMOL in Brazil, but noted they take up to 12 months to start generating revenue. Only 9 net new customers went live in the quarter (551 active vs 542 in Q2), and regional sales for Latin America and Europe were not in the release.
What to watch: constant-currency revenue growth in the fourth quarter. A drop below the third quarter's 25.6% pace would show that underlying hospital and drug-maker demand is slowing alongside the currency headwind.
Legal Bills, Share Issuance and Cash Burn Persist
Narrower adjusted losses have not yet reduced cash burn or reported losses. Reported net loss rose 1% from a year ago to $20.3 million, and nine-month operating cash outflow widened to $32.3 million from $27.8 million a year earlier. The company spent $0.9 million in the quarter defending patent lawsuits brought by rival Guardant Health ($2.8 million over nine months, as the United Kingdom case continues) and $0.5 million on workforce restructuring.
Payroll taxes on employee stock awards also more than doubled to $2.8 million in the quarter. To fund its operations earlier this year, the Swiss firm raised $69.1 million net through share offerings, which increased its share count by about 25% from a year ago by our math.
What to watch: fourth-quarter operating cash flow and litigation spending. Until quarterly cash burn falls toward the $6 million adjusted EBITDA loss, SOPHiA GENETICS will keep drawing down the cash it raised from shareholders.
💲 Other KPIs
Uncollected customer bills rose to $16.7 million from $15.0 million at the end of 2025 and $8.5 million a year ago. Receivables nearly doubled over the past twelve months (+97.9% by our math) while revenue grew 24.7%. That gap absorbed $2.4 million of operating cash over the first nine months of 2026.
Cash on hand fell by $14.0 million from the second quarter's $107.7 million balance, after the June stock offering brought in $53.5 million net. Nine-month free cash flow — operating cash flow minus equipment purchases and $7.1 million of capitalized software development — was an outflow of $40.2 million, leaving $45.5 million of cash net of $48.1 million in borrowings.
Per-share loss narrowed 20% from $0.30 in the third quarter of 2025 and $0.30 in the second quarter of 2026. Because total net loss ticked up 1% to $20.3 million, the per-share improvement came entirely from a ~25% higher share count (about 84.5 million average shares by our math, up from 67.8 million a year ago) following 2026 stock sales.
🔮 Guidance
Raised to the upper end. Management now points to the top of its $94 million to $96 million plan, or up to 24.2% annual growth (22.9% at the $95 million middle of the range). By our math, $96 million leaves $26.7 million for the fourth quarter (+23.2% from a year ago, or +18.6% at the middle), down from 24.7% in Q3 as late-Q3 currency moves create a fourth-quarter headwind.
Unchanged. The full-year plan still calls for an adjusted EBITDA loss between $29 million and $32 million, improving by about 27% at the middle of the range from 2025's $41.5 million loss. With $24.1 million of losses recorded over the first nine months, the middle of the plan leaves a $6.4 million loss for Q4 by our math ($4.9 million to $7.9 million across the range), slightly wider than Q3's $6.1 million loss.
Unchanged. The diagnostics group reaffirmed its target of "crossing over to positive adjusted EBITDA in the second half of 2027". Reaching breakeven from the third quarter's $6.1 million loss requires trimming quarterly losses by another $6 million over the next four quarters while growing into fixed cloud hosting commitments.
❓ Key Questions
Why did you restate last year's Q3 adjusted EBITDA?
The Q3 2025 adjusted EBITDA loss is now shown as $8.8 million after adding back $1.3 million in payroll taxes and $0.6 million in legal costs, versus $10.2 million reported last year. Was the $41.5 million full-year 2025 base restated on the same basis?
How much revenue do drug makers and AstraZeneca bring?
Management signed three major pharmaceutical contracts in Q3, including two AstraZeneca companion diagnostic programs, and deferred revenue rose by $0.4 million. Still, SOPHiA GENETICS has never disclosed pharmaceutical revenue or contract values so investors can size the 2027 contribution.
Is the full-year gross margin expansion goal off the table?
Gross margin excluding one-offs fell 0.3 percentage points from a year ago to 72.8% in Q3 and sits at 73.3% for the first nine months. Management previously guided for a slight increase over 2025's 74.2% full-year margin, which is not mentioned in the release.
How many signed liquid biopsy hospitals are now live?
Liquid biopsy test volume doubled to 4,200 analyses in Q3, and two large U.S. health systems were due to ramp in late 2026. With only 9 net new active customers added in Q3 despite 30 signings, how large is the unbilled customer backlog?