Tempus AI, Inc. (TEM) Earnings

Management highlights

### Overall Financial Results - Total company revenue grew 22% year-over-year to $382.5 million, marking the first quarter of lapping full integration of the AMBRI acquisition. - GAAP net income was $5.6 million, and adjusted EBITDA was $8 million, representing a $13.6 million year-over-year improvement. - Operating cash burn improved significantly to negative $7.5 million for the quarter. Ending cash, cash equivalents, and marketable securities totaled $820.7 million, up from $643.8 million last quarter. - Completed a $460 million offering of 0.0% convertible senior notes due 2032; proceeds were partially used to repay an outstanding loan, cutting annual interest expense by over $30 million and putting the company on track to achieve positive free cash flow by the end of 2026. ### Regulatory & Product Milestones - Received FDA approval for tumor-only XTCDX, enabling unified ADLT pricing across the entire solid tumor and DNA testing portfolio. This approval is expected to add a $200 uplift to average selling price (ASP), translating to ~$85 million in annual revenue starting in 2027. - Liquid biopsy test XF is currently under FDA review, with approval and launch expected in the second half of 2027. - Delivered the first version of the company's multimodal foundation model to partner AstraZeneca, successfully meeting performance criteria for predicting patient treatment response in blinded clinical trials; work on the next model version is underway. - The GenomeNext rare disease whole genome sequencing product (part of the integrated AMBRI business) launched above expectations, with early uptake 50% higher than projected in the first three weeks of launch. ### Partnership & Business Development - Signed a large multi-year data licensing and modeling agreement with BioNTech, expanding the company's roster of major pharma partners that also includes AstraZeneca, GlaxoSmithKline, Bristol-Myers Squibb, Merck, Daiichi Sankyo, Levelset Bio, and Insight Pharmaceuticals. ### Strategic Acquisition - Announced a definitive agreement to acquire Personalis, a leading provider of MRD testing, to accelerate commercial adoption of Tempus' MRD test, expand its oncology diagnostics portfolio, and strengthen its multimodal data flywheel. The MRD market is valued at over $20 billion and is one of the fastest growing segments in oncology. - The transaction is structured as a 100% stock deal, with an option to pay up to 50% of consideration in cash. Tempus is arranging a debt facility to fund the cash portion and minimize shareholder dilution. The acquisition does not change the company's plan for continued adjusted EBITDA and free cash flow improvement in 2027.

Guidance

- Full year 2026 total revenue guidance is increased to $1.595 billion to $1.605 billion, representing approximately 25% year-over-year growth. - Full year 2026 adjusted EBITDA guidance is set at approximately $65 million, a $72 million improvement over 2025. - Combined ASP uplift from XTCDX and XF approvals is projected to deliver approximately $400 million in incremental annual revenue starting in 2028. - Management expects long-term sustained growth of close to 30% or higher for the data and insights business, with solid visibility into growth for both 2026 and 2027. - Hereditary cancer testing growth is projected to reach mid-teens by the end of 2026, with conservative estimates for early whole genome sequencing growth.

Segment performance

1. **Diagnostics Business**: Generated $289.3 million in revenue, a 20% year-over-year increase, accounting for 75.6% of total company revenue. Within this segment, hereditary cancer testing revenue grew 5% year-over-year to $107.4 million, with slower growth resulting from lapping an abnormally high growth period in Q2 2025. Comprehensive Genomic Profiling (CGP) testing delivered accelerating growth that offset the slowdown in hereditary testing. MRD testing volumes grew 38% quarter-over-quarter to 9,000 tests in Q2 2026. The algorithm attach rate for solid tumor testing increased to 45% in Q2, up from 40% in Q1. 2. **Data and Apps Business**: Generated $93.2 million in revenue, a 28% year-over-year increase, accounting for 24.4% of total company revenue. The Insights data licensing and modeling sub-segment grew 36% year-over-year in the quarter. Total bookings for the business reached $200 million in Q2.

Risks & headwinds

- The Personalis acquisition includes a termination right if Tempus' share price falls below a pre-agreed floor, though management does not view this as a material risk to closing the transaction. - Early-stage MRD testing currently operates at negative margins, so ramping sales efforts too quickly before ASPs improve and break-even is achieved would increase cash burn. - All forward-looking statements, including regulatory approval timelines and ASP projections, are subject to risks and uncertainties that could cause actual results to differ materially, as detailed in the company's SEC filings.

Analyst Q&A

• Q: Can you explain how Personalis' MRD data will enhance Tempus' data offering for pharma customers, and provide more color on ASP upside for Personalis' tests? /

  A: Personalis has a strong pipeline of upcoming clinical study readouts that are expected to lead to additional coverage approvals, which will drive ASP improvement in 2027. From a data perspective, MRD testing provides earlier signals of cancer recurrence than traditional scans, which is extremely valuable to pharma companies running clinical trials, as it lets them identify patient response earlier. Demand from pharma customers to include MRD data in licensed data sets is already growing, and it will become an increasingly important component of Tempus' data offering over time.

• Q: What is the status of the AstraZeneca foundation model delivery, and what is the outlook for this partnership beyond 2026? /

  A: The first version of the foundation model met all blinded performance criteria set by AstraZeneca, outperforming existing specialized models in predicting trial patient response. This is a major milestone, and the model will now serve as a foundation for AstraZeneca's ongoing R&D work. The existing multi-year data licensing agreement with AstraZeneca has several years remaining (extending past 2028), with committed projects that already guarantee AstraZeneca will remain a large client in 2027. Management expects the partnership will continue long-term, as AstraZeneca has indicated it is very satisfied with the collaboration.

• Q: Why did you increase the projected ASP uplift for XF, and what is the risk the Personalis deal is terminated due to Tempus' current low share price? /

  A: The projected ASP for XF was increased after observing pricing for comparable recently approved liquid biopsy assays; Tempus' assay matches the complexity and size of Guardant's approved assay, which carries an $8,300-$8,400 ADLT price, justifying a higher XF price of $7,500. For the Personalis deal, management established a share price floor to limit maximum shareholder dilution, and has the option to fund up to half the transaction in cash to stay below the dilution cap even at current share prices. Personalis has strong incentive to close the deal, and management views the risk of termination as extremely low.

• Q: What is the level of momentum in the data business, and what visibility do you have for hitting 2026 data revenue guidance? /

  A: The data business is seeing the strongest deal pipeline momentum in years, with higher demand than ever before. More pharma customers are not just licensing data, but also using Tempus' Lens platform to host their own models and access GPU compute, increasing business stickiness. Management maintains high confidence in hitting 2026 data revenue guidance, with solid visibility to maintain long-term growth near 30% annually for the foreseeable future.