Executive Summary / Key Takeaways

• Tempus AI is a healthcare technology company leveraging AI and multimodal data to transform precision medicine, aiming to provide Intelligent Diagnostics and accelerate therapeutic discovery.
• The company demonstrated robust financial performance in Q1 2025, with total revenue surging 75.4% year-over-year to $255.7 million, driven by strong growth in both Genomics (89%) and Data and Services (43%).
• Strategic acquisitions, notably Ambry Genetics, have significantly expanded Tempus's testing capabilities beyond oncology into hereditary screening and other disease areas, while also accelerating the path to adjusted EBITDA profitability.
• Key technological differentiators include a vast, integrated multimodal data platform (over 40 million patient records, 300 petabytes of data) and AI-powered tools (Lens, Algos, foundation models) that enable deeper insights and faster processing compared to traditional methods.
• Management has raised full-year 2025 revenue guidance to $1.25 billion and expects to achieve adjusted EBITDA positive status, signaling confidence in continued growth and operational leverage, though profitability is currently being reinvested into future opportunities like MRD and AI development.

The Foundation: Building the Intelligent Diagnostic Ecosystem

Tempus AI was founded with a clear mission: to bring artificial intelligence and machine learning to healthcare to fundamentally improve patient care. Starting as Bioin and evolving through several name changes, the company established itself by combining laboratory test results with rich multimodal datasets, creating a unique platform designed to break down data silos within the healthcare ecosystem. This approach supports physicians, researchers, payers, and pharmaceutical companies, primarily through comprehensive genetic testing and data licensing.

At its core, Tempus is building Intelligent Diagnostics – laboratory tests enhanced by AI that incorporate diverse patient information, including clinical, molecular, and imaging data. This aims to make test results more insightful and tailored than traditional diagnostics. Unlike many diagnostic labs, Tempus is deeply integrated into clinical care delivery, operating as one of the largest sequencers of cancer and other patients in the U.S. This dual focus on deep healthcare expertise and leading technology capabilities positions Tempus at the intersection of converging trends in precision medicine.

The company's Platform, comprising a technology layer to free data and an operating system to make it useful, connects various stakeholders, often in real time. This bidirectional data flow, where providers share clinical data and Tempus returns molecular insights, is central to assembling a vast, integrated database. This growing repository, now exceeding 40 million patient records and 300 petabytes of data, is a critical asset that fuels the company's three interconnected product lines: Genomics, Data, and AI Applications. Each line is designed to enhance the others, creating powerful network effects.

Technological Edge: Data, AI, and the Pursuit of Deeper Insights

Tempus's competitive advantage is fundamentally rooted in its technology and data assets. The company's Platform is designed to capture, structure, and analyze vast amounts of complex healthcare data that traditionally remains siloed and difficult to access. This multimodal data—combining genomic sequencing results with clinical history, treatment outcomes, and potentially imaging—provides a far richer context for understanding disease and patient response than single data streams.

This integrated data set powers Tempus's AI and machine learning algorithms, enabling the development of Intelligent Diagnostics. For instance, AI-powered tools like the Lens platform and various Algos are claimed to provide faster processing and deeper insights compared to traditional methods. While precise, directly comparable quantitative metrics for all competitor technologies are not always publicly detailed, Tempus's AI models, particularly those leveraging its extensive multimodal data, are positioned to offer enhanced accuracy in areas like treatment recommendations. The recent collaboration with AstraZeneca (AZN) and Pathos to build a large multimodal foundation model in oncology underscores the strategic importance of this data and AI capability, aiming to uncover novel biological and clinical insights and accelerate drug discovery. This initiative represents a new category for Tempus, leveraging its data moat and AI expertise.

The company continues to invest heavily in research and development to expand its technological offerings. This includes developing new laboratory assays, such as the xM assay for monitoring immunotherapy response and the xH whole-genome sequencing assay, which aims to provide comprehensive variant detection in hematological oncology. R&D also focuses on AI applications like the Loop platform for target discovery and validation, the Olivia AI-enabled personal health concierge app for patients, and the Notetaker clinical assistant for psychiatrists. These initiatives demonstrate a commitment to pushing the boundaries of AI in healthcare, with the stated goal of developing algorithmic diagnostics and clinical decision support tools that can be deployed at scale through Tempus's connected network of over 4000 data pipes and 3000+ institutions. The "so what" for investors is that this continuous technological innovation, particularly the ability to integrate and derive insights from multimodal data using AI, forms a significant competitive moat. It enables Tempus to offer differentiated products, potentially command premium pricing, and capture market share in areas where data integration and advanced analytics are critical.

Navigating the Competitive Currents

The precision medicine and AI diagnostics landscape is dynamic and competitive, with Tempus facing rivals across various segments. In the core genomics space, companies like Illumina (ILMN) dominate the sequencing tools market, while others like Guardant Health (GH) and Exact Sciences (EXAS) hold significant positions in liquid biopsy and cancer screening, respectively. Veracyte (VCYT) competes in molecular diagnostics with a focus on specific disease areas. Indirect competitors include large tech firms like Google Health (GOOGL) and traditional diagnostics providers like Quest Diagnostics (DGX).

Tempus differentiates itself by focusing on the integration of multimodal data and the application of AI across the patient journey, from hereditary risk assessment and therapy selection to minimal residual disease monitoring and clinical trial matching. While Illumina excels in hardware scale and manufacturing cost advantages, Tempus's strength lies in its software platform and data analytics capabilities, which enable faster processing and potentially more comprehensive insights. Compared to Guardant Health and Exact Sciences, which have strong positions in specific testing modalities (liquid biopsy, screening), Tempus offers a broader, more integrated suite of services powered by its AI platform. Guardant Health has done a notable job establishing the tumor-informed MRD market, but Tempus is building out its own MRD portfolio, including both tumor-naive and tumor-informed approaches, leveraging its data assets for potential differentiation.

The strategic acquisition of Ambry Genetics significantly bolstered Tempus's competitive standing, particularly in hereditary cancer screening where Ambry is a recognized leader and appears to be gaining market share. This acquisition not only expanded Tempus's testing menu into new disease categories but also brought Ambry's established in-network payer relationships and genetic counselor call points, complementing Tempus's oncologist focus. This move aligns with the broader industry trend among healthcare providers seeking to consolidate vendors and work with fewer partners offering more comprehensive, integrated solutions. While Tempus's R&D intensity leads to higher operating costs compared to some scaled competitors, its rapid revenue growth and improving profitability metrics suggest its differentiated offerings are gaining traction. The ability to commercialize data multiple times—both through testing and data licensing—provides a unique revenue stream that diversifies its business model compared to labs focused solely on testing volume.

Performance and Path to Profitability

Tempus has demonstrated a trajectory of rapid growth, albeit accompanied by significant historical losses as it invested heavily in building its platform and data assets. Q1 2025 marked a record quarter, with total net revenue reaching $255.7 million, a substantial 75.4% increase year-over-year. This growth was broad-based, with Genomics revenue climbing 89% to $193.8 million and Data and Services revenue increasing 43% to $61.9 million. The Genomics segment benefited from increased Oncology test volumes and average revenue per test (up from ~$1450 to ~$1590), driven by Medicare reimbursement improvements and migration to the FDA-approved xT CDx assay, as well as the significant contribution from the newly acquired Ambry Genetics business ($63.5 million in revenue). The Data and Services growth was fueled by increased demand for Insights products from both existing and new customers.

Gross profit saw even stronger growth, nearly doubling year-over-year to $155.2 million in Q1 2025, reflecting continued gross margin improvement in both segments. While operating expenses across Cost of Revenues, R&D, Technology R&D, and SG&A increased in absolute dollars, partly due to the Ambry acquisition and increased stock-based compensation post-IPO, the company showed significant progress towards profitability. Adjusted EBITDA improved markedly from negative $43.9 million in Q1 2024 to negative $16.2 million in Q1 2025.

Despite the improving operational leverage, Tempus continues to incur net losses, reporting a net loss of $68 million in Q1 2025. The accumulated deficit stood at $2.2 billion as of March 31, 2025. Cash flow from operations remains negative, with $105.6 million used in Q1 2025, influenced by the net loss and changes in working capital, particularly a significant increase in accounts receivable. Investing activities used $375.8 million, primarily driven by the cash consideration paid for the Ambry and Deep 6 acquisitions. Financing activities provided $293 million, largely from the new term loan and revolving credit facilities secured to fund the Ambry acquisition. The company ended Q1 2025 with $153.3 million in cash, cash equivalents, and restricted cash.

Debt levels increased significantly to fund the acquisitions, with $575.7 million outstanding under credit facilities and a $238.8 million convertible note with Google as of March 31, 2025. Management believes current liquidity, combined with anticipated cash flows, is sufficient for at least one year, but future growth and R&D spending will necessitate careful capital management.

Outlook and Investment Considerations

Management has expressed confidence in the company's trajectory, raising full-year 2025 revenue guidance to $1.25 billion, representing approximately 80% year-over-year growth. A key aspect of the outlook is the expectation of achieving adjusted EBITDA positive status for the full year 2025, targeting around $5 million in adjusted EBITDA. This milestone is significantly accelerated by the acquisition of Ambry Genetics, which brings a profitable business into the fold.

The guidance is underpinned by expectations for core Tempus Genomics to grow around 30%, while the Ambry Hereditary business is projected to grow in the high teens (17-19%), influenced by lapping strong performance in 2024. The higher-margin Data and Services business is expected to grow slightly faster than Genomics. ASP improvements in Oncology testing are anticipated to continue, driven by the ongoing migration of xT volume to the FDA-approved ADLT version, targeting 40% migration by year-end 2025. However, potential reimbursement for newer assays like xM or broader MRD testing is not currently factored into the guidance, representing potential upside if achieved later in the year.

Management's philosophy is to reinvest potential earnings beyond the adjusted EBITDA positive target back into the business to fuel future growth, particularly in strategic areas like MRD development and core AI infrastructure. This suggests a focus on maximizing long-term growth opportunities rather than immediate profitability expansion. The substantial total remaining contract value (over $1 billion as of April 30, 2025), significantly boosted by the $200 million AZ/Pathos deal, provides strong forward visibility for the Data and Services segment.

However, investors should remain mindful of the risks. The company's ability to successfully integrate the Ambry and Deep 6 acquisitions and realize expected synergies is crucial. Payer coverage and reimbursement for clinical tests remain a variable factor, and changes in medical policies could impact revenue. While demand for MRD testing is strong, commercialization is currently gated by reimbursement. The path to securing reimbursement for purely algorithmic diagnostics is also an ongoing challenge in the U.S. Macroeconomic conditions and biotech funding levels could affect demand for data products. Furthermore, the company faces legal risks, including ongoing government investigations and patent litigation. Managing increased debt levels and ensuring sufficient liquidity for future investments are also important considerations.

Conclusion

Tempus AI stands at the forefront of applying AI and multimodal data to transform healthcare, aiming to deliver more intelligent and personalized diagnostics and accelerate drug development. The company's recent performance, highlighted by robust Q1 2025 revenue growth and significant progress towards profitability, underscores the increasing traction of its platform and services. Strategic acquisitions like Ambry Genetics have broadened its market reach and accelerated its financial goals, positioning the combined entity for sustained growth and adjusted EBITDA positivity in 2025.

The core investment thesis rests on Tempus's unique technological foundation – its vast, integrated data assets and sophisticated AI capabilities – which create a competitive moat in the evolving precision medicine landscape. While challenges remain, particularly around reimbursement for novel diagnostics and managing operational costs amidst high investment, the company's strategic partnerships and continuous innovation efforts point towards significant long-term potential. Investors should weigh the company's strong growth trajectory and technological differentiation against the execution risks inherent in integrating acquisitions, securing broader reimbursement, and navigating a competitive market, keeping a close eye on progress in key areas like MRD commercialization and the development of AI-powered applications.