Tempus AI 2026 Q2 Earnings Call

Good afternoon, and welcome to Tempus' second quarter 2026 conference call. This afternoon, Tempus released results for the quarter ended June 30th, 2026. The press release, an overview of the quarter, and our latest presentation are available on our IR website at investors.tempus.com. Joining me today from Tempus are Eric Lefkofsky, Founder and Chief Executive Officer of Tempus, and Jim Rogers, CFO. Before we begin, I would like to remind you that during this call, management will be making forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks, please refer to our 10-K and other subsequent filings with the SEC. During the call, we will discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles.

Definitions of these non-GAAP financial measures, along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, which is available on our IR page. I would now like to turn the call over to Eric.

Thank you, and good afternoon, everyone. Q2 was an exceptional quarter for Tempus. Overall, our revenues increased 22% to $382.5 million, with this being the first quarter where we are lapping Ambry being fully integrated into our results. Our diagnostics business delivered $289.3 million of revenue, an increase of 20% year-over-year, as slower growth in hereditary cancer testing was offset by higher growth in CGP testing due to acceleration in the business. Momentum continues as June saw some of the strongest growth we have seen to date across the portfolio. Hereditary revenue for the quarter was up 5% to $107.4 million, as Q2 of 2025 was a period of abnormally high growth, which we are now lapping. Data and apps revenues were $93.2 million, increasing 28% year-over-year, with our data licensing and modeling business, Insights, growing at 36% in the quarter.

There were also several notable highlights in the quarter. We received FDA approval for tumor-only xT CDx. This approval allows the migration of our entire solid tumor DNA portfolio to be under unified ADLT pricing. We expect an estimated $200 uplift in ASP, which equates to approximately $85 million on an annual basis beginning in 2027. It's also important to note that we have our liquid biopsy, xF, in front of the FDA now, and when that is approved and in market, which should be in the latter half of 2027, we expect the incremental ASP lift to be an additional $550. Between xT CDx and xF approvals, we anticipate approximately $400 million of revenue uplift in 2028. We introduced initial results from and successfully delivered the first version of our foundation model to AstraZeneca. The model was used to predict which patients responded in several public and blinded clinical trials.

We're thrilled to have achieved this milestone and are now working on the next version of the model. We signed a large multi-year data licensing and modeling agreement with BioNTech, who now joins the ranks of AstraZeneca, GlaxoSmithKline, Bristol Myers Squibb, and others. This, along with Merck last quarter, is further evidence that our data and modeling capabilities are becoming instrumental to pharma. We also signed large deals with Daiichi Sankyo, Level Set Bio, and Insight Pharmaceuticals, contributing to the approximately $200 million in total bookings this quarter. We completed a $460 million offering of 0.0% convertible senior notes due 2032. The proceeds of this offering were used in part to repay an outstanding loan from Ares Capital. Importantly, this transaction allows us to save over $30 million annually in interest expense, enabling us to achieve positive free cash flow by year-end.

GAAP net income was $5.6 million, and adjusted EBITDA was $8 million, a $13.6 million year-over-year improvement. We finished the quarter with $820.7 million of cash equivalents, and marketable securities compared to $643.8 million last quarter. As expected, cash used in operating activities improved significantly to negative $7.5 million in the quarter. On top of all this, on July 20th, we announced an agreement to acquire Personalis. Minimal residual disease, MRD testing represents a $20 billion+ market and is one of the fastest-growing segments in oncology diagnostics. Bringing Personalis under our roof accelerates commercial adoption of our MRD test, rounds out our overall portfolio, and strengthens the multimodal data flywheel that differentiates our business. Given their improving financial profile, we felt now was the right time to pursue a strategic acquisition.

Up until now, we have phased our sales efforts, as only about 10% of our sales force is selling MRD today based on these reimbursed indications. Even with that, we are delivering growth rates that have exceeded our expectations, running approximately 6,500 tests in Q1 and approximately 9,000 tests in Q2, growing 38% quarter-over-quarter. With reimbursement in place for several indications and more coming, we believe volumes will be materially higher as we equip additional sales reps with NeXT over time. The transaction is structured as a 100% stock transaction, with Tempus having the option to elect payment in cash, capped at 50% of the consideration paid. We have already begun working with parties to put a debt facility in place as our intention, obviously depending on our stock price, is to finance a large portion of the proceeds with debt to minimize shareholder dilution.

Even with this acquisition, we intend to see continued improvement in adjusted EBITDA and free cash flow in 2027. Turning to guidance. We are increasing guidance to $1.595 billion-$1.605 billion in 2026, representing approximately 25% growth. We expect 2026 adjusted EBITDA to be approximately $65 million, an improvement of about $72 million over 2025. We're exceptionally proud of our results this quarter and look forward to carrying this momentum into the second half of the year. Operator, we are ready to open the line for questions.

Thanks a lot. I'll start on the ASP, and then Eric can take the second piece.

On the ASP, obviously they've gotten coverage in several indications over the last several quarters, and so there's been improvement on the Personalis front. They have more indications that are coming down the pipeline as well. Over time, obviously we would anticipate ASPs to continue to improve as they secure coverage and additional indications. Also from a volume perspective, our ability to expand the sales force that is able to sell that test, which today is around 10%, will help us drive volume. They're early on in the ASP curve, but they've obviously had a tremendous amount of success in getting the first couple indications approved, and we anticipate that continuing. Just to maybe a bit more color there, and then I'll jump into the data.

I think the part of their story that is so compelling is that they have a really nice pipeline of studies that are being run, and we, like others, are watching and reacting to those studies that read out to turn into papers that eventually turn into approvals. They've done a great job of getting three approvals so far. They have a whole pipeline of others coming. The real clarity that's come into focus over the last 30, 60, 90 days is that you can start to see how this ASP story is going to turn for them in 2027.