Tempus AI, Inc. Q1 FY2025 earnings call

• Q1 was a record quarter for Tempus with quarterly revenue up 75.4% y-o-y to $255.7M. - Genomics revenue $193.8M, 89% y-o-y growth; Oncology testing grew 31% y-o-y with ~20% volume growth; Hereditary testing contributed $63.5M, units grew 23%; Data and Services revenue $61.9M, 43% y-o-y growth led by Insights growing 58% y-o-y. - Adjusted EBITDA improved from -$43.9M in Q1 2024 to -$16.2M in Q1 2025. - Increased full-year 2025 revenue guidance to $1.25B, ~80% y-o-y growth. - Announced a three-year, $200 million data and modeling license agreement with AstraZeneca and Pathos in April to build the world’s largest foundation model in oncology, bringing total remaining contract value to >$1B as of April 30.

Quarterly revenue increased 75.4% year-over-year to $255.7 million. Genomics revenue was $193.8 million, about 89% year-over-year growth. Oncology testing (legacy Tempus clinical testing) grew 31% year-over-year with approximately 20% volume growth. Hereditary testing (legacy Ambry Genetics business) contributed $63.5 million in revenue and grew its units by 23%. Revenue from Data and Services totaled $61.9 million, which was about 43% year-over-year growth, led by Insights or data licensing business growing 58% year-over-year. Generated $155.2 million in quarterly gross profit, 99.8% growth year-over-year. Adjusted EBITDA was negative $16.2 million in Q1 2025 vs negative $43.9 million in Q1 2024, an improvement of $27.8 million year-over-year.

• Increased full-year 2025 revenue guidance to $1.25 billion, representing about 80% year-over-year growth. - The $200 million Pathos deal will ramp over the three-year period, roughly ratably over the three-year term during which the model will be built.

• Macro environment could lead to cancellation or pullout of TCV, especially for biotechs due to funding issues. - However, relationships with large pharma companies are multiyear subscriptions committed, and data business may have some benefit when budgets are shrunk as they can leverage data more effectively.

Q: Hey guys, good evening and appreciate the time here. Eric, congrats on a clean start to the year. I want to ask a two-parter on the AZ-Pathos deal that you just highlighted as well. So first up, can you just share some color on follow-up conversations with other pharma companies about the possibility of similar deals for foundational model development and oncology? And what is it about the Pathos approach that really is the hook here for drug developers? And on the deal again, one for Jim, I want to dig a little bit into the deal structure here. It’s a little bit sort of complicated. So, as we think about the rev rec on this $200 million amount, there is that $50 million upfront fee from Pathos to you guys, but then you guys are also paying them, I think, $35 million. And then in terms of upfronts, you also get an AZ, I think, paying $35 million. So, just pass that out for us in terms of how you expect it to play out on the P&L. And then the $150 million residual from Pathos, I think, there’s a stock component in it as well. So, just unpack that a little bit in terms of the next three years and how it flows through the P&L.

A: Yes, so I can start and then Jim can jump in. So after we announced this deal, obviously there was quite a bit of excitement among other companies. We work with, I think, 19 of the 20 largest pharmaceutical companies in oncology and have good relationships with a bunch. And so people were quite interested. AstraZeneca is one of the leaders in oncology and has had a really strong track record over the past four, five years and so I think people were particularly focused on what was this going to mean for them going forward and how should they try to bring it into their own practice. Some of those conversations have already kicked off. I would say the excitement has been greater than I thought it was going to be. And I had pretty lofty expectations, so that’s awesome. But these are big deals, as Jim will cover in a second, this is $200 million of data licensing and real data revenue. And so somebody is got to be willing to sign up for something that significant. And it’s expensive. And so even though there is a ton of excitement, we have to turn that into tangible agreements, and tangible projects and kick those off. In the case of AZ and Pathos, AstraZeneca was a client of ours. They also had spent some time with Pathos and got to know that team. I think there was – independent of the Tempus relationship, they were exploring some different ideas together. And so I think when we began discussing this idea of building a foundation model, it made sense for them to want to have this be a three-way agreement whereby they could make a sizable investment and commit some of the attributes they have, but they also could leverage a bunch of work that Pathos had done, and then obviously leverage our data and the work we had done. And so it came together as a three-way partnership, but just as easily could have come together as a two-way partnership between us, and the pharmaceutical company and not involve Pathos. And I’ll let Jim cover the rev rec.

Q: Hi. Thanks for taking my questions and congrats on a great quarter. Maybe you could talk about the hereditary business. I think the original expectation as that was integrated – as Ambry was integrated, was sort of a maybe a mid to high teens growth rate for this year, but obviously kicking off the year at much faster rate and around 23%. Can you just maybe talk about what surprised you to the upside in terms of the performance of that business and maybe how durable the sort of mid-20s growth rate was?

A: Yes, I mean, obviously it’s early, so we don’t – there is no point getting too ahead of our skis. But we talked about this, I think, when we announced the Ambry acquisition, which was there was this kind of narrative that hereditary screening was either kind of in the twilight or sunset of its horizon or had become commoditized. And we just obviously couldn’t feel more strongly that that’s not accurate. I mean, I could foresee a day when tens of millions of people get this kind of sequencing on a regular basis, not just to understand their inherited cancer risk, but their inherited cardio risk, their inherited Alzheimer’s risk, their inherited risk of developing immunological disorder later in life. And so the target audience of people that might be at risk of disease is obviously much greater than the audience of people that have disease, generally speaking. So I think long term, we suspect Ambry will grow at high rates. In the near term we told people we thought the growth rate would be mid to high teens in large part because they experienced a lot of rapid growth previously. So you’re lapping that period. So, yes, the business is performing really strong. That may continue. But we’re not here to kind of highlight that for folks. We’re watching it month to month, but so far, they’re firing on all cylinders, and we see no sign of that slowing down.