Tempus AI, Inc. Q2 FY2025 earnings call

• Q2 was an excellent quarter with revenue up 89.6%. Genomics revenue grew 115% driven by oncology and hereditary testing volume growth. Data and Services revenue up 35.7% led by Insights. - Adjusted EBITDA improved sequentially from -$16 million last quarter to -$5.6 million this quarter, approaching breakeven. - Full year 2025 revenue guidance raised to $1.26 billion, adjusted EBITDA forecast maintained at ~$5 million. - Issued $750 million of 0.75% convertible notes, cash and marketable securities at $290 million, balance sheet in good shape.

Revenue increased 89.6% to $314.6 million. Genomics revenue grew by 115% to $241.8 million, accounting for approximately 76.9% of total revenue, with oncology and hereditary testing showing strong growth. Data and Services revenue rose 35.7% to approximately $73 million, making up about 23.1% of total revenue, led by Insights growing nearly 41%. Quarterly gross profit was $195 million, a 160% increase.

• Upgraded full-year 2025 revenue guidance to $1.26 billion. - Maintained adjusted EBITDA forecast of about $5 million for the year. - Data business expected to grow around 30% for the year.

• Potential competition in AI and data space may change. - Uncertainty in healthcare system reimbursement for AI algorithms. - MRD and other products need reimbursement to drive significant growth.

Q: Congrats on the quarter. Obviously, ask a multiparter upfront. Maybe first, Eric, can you just elaborate on the strong core Genomic volumes in the quarter? I know in your script, you kind of talked about sales force efficiencies. Just any color where this strength came from, tissue versus blood, broader market share versus share gains? Next, Ambry, really strong quarter there. I know in your script, you talked about volume outlook and the deal model could be too low. Just kind of what are you seeing there? And I know you also talked about the rare kind of genetic disease for kids kind of is that contributing today? And then finally, insights, nice quarter there, 40% growth. Any color on how Pathos is doing? I know you called it out in the written script, that it is contributing. Just wondering how that's going and if there's any color on bookings, that would be terrific, too.

A: So there's a lot there. So I'll start at the beginning, maybe Jim could jump at the end. But we saw significant sequential volume growth across our entire oncology testing compendium. It was widespread. It wasn't just solid or liquid, it was really across the board. It was notable. For us, it's a function of a lot of the things we had put in place in terms of sales force efficiency, realigning some of the territories, improvements we have made across our technology stack. And we just saw a bunch of those efforts kind of pay off in Q2. The volume growth has been really strong, and it's great to see, and it's exactly what you want. If you put forth a bunch of initiatives and they start to pay dividends. You have a reason to believe that they're going to be sustained. So we feel like we're in a great spot in our oncology business. The hereditary volumes are also significantly stronger than we expected and they do show no near-term signs of slowing down. The growth is really coming from a few areas. It's in part coming from the fact that some of the historic players in that space have just kind of shrunk in terms of their market share. And so we're capturing a lot of that volume. And it's also that the overall space appears to be experiencing some really good tailwinds. And as I called out in my letter, it makes sense. When we acquired Ambry, we had hoped that this space would be quite large over time. People thought it was kind of getting the saturation of maturity, and we historically have said we think that's exactly wrong. And we tend to believe that's the case. There are just far more people that are at risk of getting cancer or risk of getting disease than those that have the disease. And so I would not be surprised if the volumes from hereditary sequencing are dramatically larger than the volumes from cancer sequencing or any one disease. They're also making great progress in rare and pediatrics. They're basically the #2 player in that space. And even though it's small, it's growing pretty rapidly. And I would suspect over time that business will grow as well. So all in, the testing business just was really strong across the board. In terms of our data business, it too is having a moment. Obviously, we signed a very large deal to build a foundation model. So that's super exciting. That's under construction. And we've got great visibility to the balance of the year, which is where you want to be. It's the law of large numbers, right? Our growth rate is going to -- we're not going to grow that business at 80%. It's not going to happen. We told everybody we want to maintain growth rates around 25% to 30%. And so we grew above that this quarter, which is great. So all in, I would say, if you look across the 2 main drivers of the business, sequencing diagnostics and data, we're just in a really strong spot.

Q: Given the significant progress you already made in first half migrating xT volumes to CDx in addition to ASP drag from xM ramp. How should we think about cadence of ASP as we think about path towards the goal of migrating 40% of xT volume to CDx exiting the year? And then also although you have a whole transcriptome RNA panel, some of your peers are adding additional features on their tissue therapy selection test, such as RNA and epigenomic markers. Is this something that you might look to in the future?

A: Yes. So I'll take the first question on kind of ASP and then Eric can speak to kind of future products. So on ASPs, as we mentioned in the letter, we did see an increase in the volume of xT CDx. It was about 20% of our xT volume in Q1 grew about 28% in Q2. And then as you mentioned, we're kind of targeting to get to 40% by the end of the year. In Q2, we did see a mix shift to some of our lower dollar or lower reimbursement assays, both xM, which we don't have reimbursement for today and then also xG. We would think over the balance of the year as we kind of approach 40%, you would see kind of incremental gains to overall ASPs, and on the xM side, that will continue to grow as well. But we are still gating that volume. So we're not anticipating xM kind of creating -- offsetting all of the gains that we have. But we won't see kind of a significant step-up as what we saw in Q1, but we would anticipate kind of small incremental gains over the balance of the year. And in terms of RNA sequencing, we've been doing whole transcriptome sequencing since the beginning. It's just kind of the way we started when we open up our lab. We were always doing targeted panel sequencing on the Genomic side, but doing whole transcriptome on the RNA side. And really, our pioneers in the space of running whole transcriptome sequencing from FFP slides. Our panel is just super comprehensive, not only do we basically report on expression levels on the entire transcriptome, we also do TCR profiling through that assay, BCR profiling, HLA typing. We have a whole body of algos that are also produced from that. So at the end of the day, it's just a really comprehensive panel. So I think likely the advancements we'll make will be more on the DNA side going forward as we migrate from targeted panel sequencing to whole genome sequencing over time. And we expect if you kind of fast forward 5 or 10 years, my guess is targeted panels go away largely and people are just doing whole genome and whole transcriptome and layering in other markers like, for example, epigenomic methylation markers throughout those assays.