Tempus AI Q2 2024 Earnings Report

Tempus AI EPS Results

• Actual EPS: -$6.77
• Consensus EPS: -$4.41
• Beat/Miss: Missed by -$2.36
• One Year Ago EPS: N/A

Tempus AI Revenue Results

• Actual Revenue: $165.97 million
• Expected Revenue: $159.10 million
• Beat/Miss: Beat by +$6.87 million
• YoY Revenue Growth: N/A

Tempus AI Announcement Details

• Quarter: Q2 2024
• Date: 8/6/2024
• Time: N/A
• Conference Call Date: Tuesday, August 6, 2024
• Conference Call Time: 4:30PM ET

Tempus is a technology-driven healthcare company that applies artificial intelligence and machine learning to clinical and molecular data in order to advance precision medicine. Its primary focus lies in oncology, where the company offers comprehensive genomic profiling, digital pathology services and data-driven insights to inform personalized cancer care. By integrating DNA and RNA sequencing with structured clinical information, Tempus enables clinicians and researchers to identify targeted treatment options for patients based on the genetic characteristics of their tumors.

The company’s core offering centers on a scalable, cloud-based analytics platform that aggregates vast amounts of molecular and clinical data. Through proprietary bioinformatics pipelines and AI algorithms, Tempus delivers interpretive reports that highlight actionable mutations, potential biomarkers and relevant clinical trials. In addition to oncology applications, the platform is designed to support research across immuno-oncology, hematology and other therapeutic areas, helping pharmaceutical and biotechnology partners accelerate drug discovery and development.

Founded in 2015 by entrepreneur Eric Lefkofsky, who serves as chairman and chief executive officer, Tempus is headquartered in Chicago with additional laboratory and research facilities across the United States. Under Lefkofsky’s leadership, the company has grown its dataset to include hundreds of thousands of de-identified patient records, establishing one of the industry’s largest repositories of real-world evidence. Tempus collaborates with academic medical centers, regional health systems and community oncology practices to expand access to genomic testing and AI-enabled insights.

Through strategic partnerships and a continuous investment in technology, Tempus AI (NASDAQ:TEM)ms to democratize access to precision medicine and improve patient outcomes on a global scale. Its services are utilized by healthcare providers seeking to tailor treatment plans, by researchers conducting retrospective analyses, and by life sciences organizations pursuing novel therapeutic targets, underscoring Tempus’s role at the intersection of data science and clinical innovation.

Tempus AI Q2 2024 Earnings Call Transcript

Key Takeaways

• Core genomics unit volumes grew 22% year-over-year, with roughly 4,000 more tests in Q2 versus Q1, targeting 25%-30% unit growth and a $50 bump in ASPs to $1,500 driven by a higher Medicare mix.
• The MRD platform launched with a tumor-naive assay in colorectal cancer and tumor-informed assays for breast, lung and IO, receiving positive early feedback but volumes are being metered until Medicare reimbursement submission in 2H25.
• Data and services revenue was led by Insights licensing, which comprises ~75% of that segment and grew fastest, driving strong bookings and leaving over $900 million in remaining contract value; 2024 revenue is expected to split roughly 2/3 genomics and 1/3 data/services.
• Rapid additions of about 60 sales reps and territory realignments weighed on Q2 productivity, which fell below expectations though management expects improvement in Q3.
• AI applications such as the Purist NLP algorithm and cardiac diagnostics reached regulatory milestones but remain a small-revenue, multiyear adoption effort pending clear reimbursement pathways.

Presentation

[Operator]

Thank you for standing by. I am Augusto, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2024 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would withdraw your question, press star one again. Thank you. I would now like to turn the call over to Miss Liz Krutoholow, Vice President of Investor Relations. Please go ahead.

[Liz Krutoholow, VP of Investor Relations at Tempus AI]

Thank you. Good afternoon, and welcome to Tempus's second quarter 2024 conference call. This afternoon, Tempus released results, the quarter ended June 30th, 2024. Joining me today from Tempus are Eric Lefkofsky, founder and CEO of Tempus, and Jim Rogers, CFO. Before we begin, I would like to remind you that during this call, management may make 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 visit our 10-Q for the quarter ended June 30th, 2024, filed on August 6th, 2024, as well as any future reports that we file with the SEC. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

[Liz Krutoholow, VP of Investor Relations at Tempus AI]

Definitions of these non-GAAP financial measures, along with reconciliations to the most directly comparable GAAP financial measures, are included in our second quarter earnings release, which has been furnished to the SEC and is available on our website at investors.tempus.com. I would now like to turn the call over to Eric.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

First, welcome, everybody, to our first earnings call as a public company. We're excited to be here and happy to answer some questions. I'll just, maybe for 30 seconds, give some color. Q2 is a strong quarter. As, as we provided some additional insight in our overview letter, our core businesses remain on track. Everything is, is how you want to see it, up into the right, and we're executing as we had, intended, both, when we began this process a few months ago, going public and then certainly carrying into the quarter. So I would say that, we, we feel like we're in good shape and happy to answer any questions that people have.

[Liz Krutoholow, VP of Investor Relations at Tempus AI]

Operator, we can open the line for questions, please.

[Operator]

Well, at this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile our Q&A roster. For our first question, Tejas Savant with Morgan Stanley, please go ahead.

[Tejas Savant, Executive Director and Senior Healthcare Equity Analyst at Morgan Stanley]

Hey, guys, good evening, and congrats on a good start out of the gate, post-IPO. Eric, maybe you or Jim can chime in on this. You know, nice progress on ASPs here on the genomics side in the quarter. Can you just walk us through how you're thinking about potential ASP upside in the back half of the year? You've got the ADLT rate on xT coming through as well, but any color on how much of that is baked in versus progress on the commercial payer front would be great. Thank you.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

I'll start by covering just the core genomics business volumes that Jim could talk a little bit about on the reimbursement side. I think in terms of the overall strength of our units and the unit growth, as we covered in our overview letter, we feel like we're completely on track. We expect that trend to continue. And, you know, there's obviously some kind of percentage seasonality of growth rate in that you could have, you know, fewer days in the quarter, or ASCO, depending on when it falls, could have some impact. But we feel like our core genomics business is performing as we expected.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

We feel like we can be in that 25%-30% growth range in terms of units, and given our size and scale at this point is certainly one of the largest therapy selection sequencers that are out there, we feel like that's a really healthy place to be. And in terms of ASP and the reimbursement term for Jim.

[Jim Rogers, CFO at Tempus AI]

Yeah. Thanks, Tejas, for the question. So our average reimbursement in Q2 was about $1,500, an increase of about $50 over where it was at in Q1 of 2024. The biggest drivers in kind of that, that uplift were a slight mix shift to more Medicare, Medicare Advantage, patients, which, typically you reimburse at a higher rate than we get from commercial payers. As a reminder, we're primarily an out-of-network provider, with, with commercial payers, so average reimbursement is significantly lower than what we've received from, from Medicare. This presents an opportunity for us going forward as we negotiate with those payers to cover kind of the various tests that we have in market. Tejas, you also mentioned kind of the ADLT status for our xT CDx assay, which is our FDA-approved version of, xT.

[Jim Rogers, CFO at Tempus AI]

The initial price there was set at $4,500, but that pricing process will play out over the back half of this year. So there won't be a meaningful impact to ASPs in 2024 as it relates to the FDA-approved version. But as we start to migrate volume to that version of the assay in early 2025, we should see some additional tailwind.

[Tejas Savant, Executive Director and Senior Healthcare Equity Analyst at Morgan Stanley]

Got it. That's helpful. And then, guys, just wanna dig in a little bit on the MRD launcher. Any anecdotal, you know, early customer feedback you can share? Any sort of, like, differences you'd like to call out in the reception for, you know, the Tumor-Naive version versus NeXT Personal at this stage? And how are you thinking about volume contributions from MRD in the back half of the year? And then, is reimbursement essentially a back half 2025 dynamic, or could it happen sooner than that?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah. Again, I'll cover the overall launch, and maybe Jim can cover some thoughts on reimbursement. So we launched... For those that don't know, we launched basically our entire MRD platform at ASCO with a tumor-naive assay in colorectal cancer, and then in partnership with Personalis, we brought a breast, lung, and IO to market as well with a tumor-informed assay. The-- I think the response has been quite positive, even though we're both metering out volume at this point, because if we kind of opened up the floodgates, you would likely have an enormous amount of volume that's, you know, at the present moment, not reimbursed.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

So given that it takes some time to get reimbursement, we're metering out accounts that we offer the assay to and ramping up slowly so that we can kind of, you know, manage the expense side of getting the tested market. That said, everything we hear anecdotally is super positive. I think, you know, to as I mentioned to a bunch of folks, historically, tumor-naive has a place in the market, given that logistically and administratively, it's just easier than tumor-informed for many accounts that can't do an additional biopsy or don't have enough tissue to basically run, you know, a second set of sequencing. It consumes a lot of tissue every time you sequence a patient.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

So if you've done therapy selection once, now you have to do a MRD for, you know, an informed assay. It can be logistically problematic, so I think naive has a place. And then the next assay that Personalis brought to market, which we're obviously their partner in, is really ultrasensitive, and so there's a place for that as well, where people are really looking for that ultra sensitivity and specificity and really low limits of detection. And so I think we feel like we've got a really nice MRD bag in market, where we have a really good logistical product and a really ultrasensitive product, and we think we can meet the needs of the market across that spectrum.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

But we won't dial up those units or that volume until reimbursement's in sight, and maybe Jim can give some comments on that.

[Jim Rogers, CFO at Tempus AI]

Yeah, in terms of reimbursement for our internal tumor-naive panel, we're packaging that up to submit it to MolDX right now, and then that process will play out. So, you know, you mentioned kind of back half of 2025, Tejas. I think that's a typical timeframe, but we'll certainly provide more color as that process unfolds.

[Operator]

Our next question comes from Rachel Vatnsdal with JPMorgan. Please go ahead.

[Rachel Vatnsdal, Executive Director of Equity Research at JPMorgan]

Perfect. Good afternoon, and thanks for taking the questions, you guys. So first up, on the genomics performance in the quarter, that grew 22% year-over-year. You mentioned all tests performed well in the quarter, but I was wondering if you could unpack that for us a bit more. Walk us through, even if it's from a high-level color standpoint, how each test performed in 2Q. And then were there any notable shifts in terms of volume contribution by each test as well?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, there was, I mean, there was nothing material in terms of, like, a systemic shift of how the orders came in. You know, we have a platform that's in. We're in inherited cancer risk, we're in solid tumor profiling, and liquid biopsies. So we kind of cover all three pretty broadly, and I would say all are, you know, kind of performing in terms of both unit and revenue growth as they historically have. There was no, like, very large cyclical shift as if, like, all of a sudden, our solid tumor went one way or liquid went another. They're all kind of moving in the same direction they were moving in. Obviously, or not obviously, but liquid for us was a newer product than solid.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Solid was the first assay we launched, and liquid came later, and so the growth rates of that product historically have been higher. But at the end of the day, you know, as these products now get to scale, and we are at scale in terms of, you know, ctDNA assays, we're at scale in terms of solid tumor profiling, we're, you know, approaching scale at inherited cancer risk, I would suspect that the growth rates will start to normalize, where you won't see very large differentials between the three as we keep getting bigger.

[Rachel Vatnsdal, Executive Director of Equity Research at JPMorgan]

Thank you.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

And I think we've also historically said that liquid was about a quarter of our volume, and it remains as such. There's been no systemic shift there.

[Rachel Vatnsdal, Executive Director of Equity Research at JPMorgan]

Perfect. Okay, that's helpful. Then maybe just for my follow-up, could you break down for us the data revenues into insights, trials, and AI applications in 2Q? And then if I look at guidance, you pointed us towards that $700 million mark on revenues for the year. How should we think about that mix between data versus the genomics business? And then is there any seasonality that we should be aware of across 3Q and 4Q for each of those segments as well?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

I'll cover the first part, and Jim can take the second part, which seems to be a theme today. So in, you know, in terms of the data business, which obviously has some accelerating growth, you know, we provided some color that Insights led the way. We had a really strong Insights quarter, which is our data licensing business. The trials business grew, but didn't grow as fast as our data licensing product Insights. Insights also has a much higher margin. So to the extent we want some part of our data and services business growing, you know, we want the Insights portion growing. It has the highest margin, and it's the one that we spend a lot of time focused on.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Our trials business is really made up of a few components. It's made up of our just-in-time network, which we call TIME. It's made up of the small little studies component, and it's also made up of our CRO business that we call Compass. And, you know, we are not investing as heavily in growing our CRO. It's not a core part of our growth strategy. It's an important component of what we do, but it isn't something that we focus on growing as much as we do, for example, our insights business. And so I would suspect that, you know, over time, if we continue to deliver, insights will continue to outpace our trials business. And so I would suspect that'll be a trend we see going forward as well.

[Jim Rogers, CFO at Tempus AI]

Yeah, just adding a little bit of color to that breakdown. So the Insights business represent about 75% of the data and services revenues, and to Eric's point, also growing the most quickly amongst those components. In terms of about approximately $700 million in total revenue for full year 2024, you know, historically, it's been kind of a 2/3, 1/3 split, 2/3 genomics, 1/3 data and services. Obviously, the data and services side of things is growing more quickly than the genomics business, and so we would slightly, kind of, slightly toward the data and other business over genomics, you know, for the remainder of the year.

[Operator]

Michael Ryskin with Bank of America, please go ahead.

[John Kim, Director at Bank of America]

Hello, afternoon, this is John Kim on for Mike. Any update on the Guardant lawsuit? I know it's gonna take a few years to play out, but yeah, I wanted to see if you guys have had any updates.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

No, there's no updates. There likely won't be a material update unless something happens like, you know... For years, these things take a long time to get resolved, as we've said historically, and we don't feel like it's material. We feel like we've got appropriate defenses, and it's not something that we're overly concerned with, and I suspect it'll take years to play out. Unfortunately, in our space, you know, litigation has been a pervasive component of a lot of activity, and I would suspect that will continue just by nature. But we're, you know, focused on doing what's right for patients.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

We're focused on making sure that our tests are the best in the market, and people have access, and that's what we continue to keep, you know, keep our eye on the ball.

[John Kim, Director at Bank of America]

Gotcha. And then in terms of the costs, they came in as expected, but looking ahead, you guys also gave us the EBITDA guide there. Any thoughts on when any change in your thoughts on when you're gonna hit the Adjusted EBITDA profitability?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

At a high level, we made, I think, really strong progress in the quarter. I mean, we were $12.7 million in improvement quarter over quarter. So I think, as we told people, we felt like the leverage was showing up in the business, and that was demonstrated, I think, in Q2, and we would suspect additional leverage will continue as we keep growing, and so we feel like we're right, right on track.

[Operator]

Dan Brennan with TD Cowen. Please go ahead.

[Dan Brennan, Sellside Senior Equity Research Analyst at TD Cowen]

Great, thanks, thanks for the questions. Congrats on the quarter here and the IPO. A lot of detail in the prepared remarks or in the, or in the script that's on the website regarding the Insights business and some of the new contract signings. Maybe can you just expand a little bit there? Maybe starting with Novartis, you discussed there, you're gonna deliver this throughout 2024. Can you help kind of us think through kind of the size of that contract or any details around it? And then the new five-year agreement with Takeda, you discussed that as a significant expansion in size and scope. Maybe can you provide some color on that contract and how we might think about sizing it?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, I mean, we obviously didn't include numbers for a variety of reasons, not the least of which, you know, we're sensitive to that we've got partners and those things. There are times that they're appropriate, times that they're not. These are all good-sized deals for us. They're, you know, I think what we represented in the quarter is that we had multiple large pharma companies, and we didn't list all the smaller biotechs, but we also signed various agreements with, but we had, you know, kind of four larger pharma companies that all did significant deals in the quarter.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

And for us, it was just a sign of both in terms of the revenue we delivered in our Insights business and the bookings we delivered. Q2 was a really strong data licensing quarter, and you know, that was good to see. We expected to see it, but it was good to see, and we expect that momentum to continue at least in the foreseeable future. But we don't really comment on the size of these deals unless they get so big that we, you know, kind of have effectively no choice. And these deals were really good-sized deals, but they weren't, you know, $300 million deals where we would be talking about a bigger deal.

[Jim Rogers, CFO at Tempus AI]

Yeah, and I would also add that, you know, the total remaining contract value is still north of $900 million. So again, as Eric pointed out, we delivered a lot of revenue, but obviously, you know, had bookings that kind of refilled that total remaining contract value. And the other metric, which we present on annually, is that revenue retention. These are, again, highlighting ones that we had agreements in place and were able to expand those in subsequent years. So we're excited about all the agreements that were mentioned in the release.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, it's really another, you know, just to jump on Jim's commentary, that's one of the most exciting things about the Astellas and Takeda arrangements, in addition to Novartis, is these are people that had multi-year agreements and, you know, re-upped for larger agreements or re-upped for larger periods of time. And so that's what you, what you wanna see. Our Tempus is only eight years old, right? We've only been licensing data for five or six years. So what you want, and which means that most of our clients have only been clients for two or three years on the data side. So seeing big renewals occur over and over again is a really good sign that we're adding a ton of value, and that value is resonating with our clients.

[Operator]

Dan Arias from Stifel, please go ahead.

[Dan Arias, Managing Director at Stifel]

Afternoon, guys. Thanks. Eric, maybe to your point there on data, data contracts, one of the questions that we got during the process was on the $900 million+ in revenues that are already contracted, but which contains the $300 million from customers that haven't formally renewed. Can you just talk to confidence in re-upping those two accounts, and then maybe remind us when it is that those contracts actually come up again for renewal?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, I mean, they've actually, both contracts have actually already been extended, not in terms of timing. So I think in one of the amendments, we add another year, I think, to AstraZeneca, something like that, and we have a longer duration now going out with GSK as well. So we have, we've got. I don't know the exact dates, but I'll say roughly 2027, 2028, somewhere 2027, 2028. So, it's there. These contracts go, you know, kind of years in the future. So there's no immediate cliffs coming up, and we feel good about all of our larger deals in terms of the value that we're delivering, and we would suspect that the vast majority of all our big deals renew, and hopefully expand.

[Dan Arias, Managing Director at Stifel]

Yep. Okay. And then just as a follow-up, on the xF assay, do you think you end up submitting that this quarter, or is it best to think about it as by the end of the year?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Sorry, Dan, I didn't catch that one.

[Dan Arias, Managing Director at Stifel]

The submittal of the assay to the FDA, I was under the impression that that was, you know, that's a process that's ongoing now. I'm just curious whether you think you get over the hump on that, you know, in the next couple of months, or is it more like a December?

[Eric Lefkofsky, Founder and CEO at Tempus AI]

I don't have the exact timing, but, you know, those teams are working on a submittal that's, you know, fairly imminent. And so I think the bigger issue for us is both in terms of RNA and our liquid biopsy. We've got efforts in place for both to submit, and, you know, whether it's one quarter away or two quarters away, it's, you know, these things are all kind of imminently coming.

[Operator]

Andrew Brackmann with William Blair, please go ahead. Andrew Brackmann, your line is on mute.

[Andrew Brackmann, Equity Research Analyst at William Blair]

Yep. Hey, guys, sorry about that. Good afternoon. Thanks for taking the questions. Maybe on the rep side of things, I know you added a few, or I think it was somewhere around 30 in the first part of the year. So can you just give us an update on the productivity of that new cohort, as well as just sort of working through any sales force changes or disruptions that may occur as a result of that? Thanks.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, I mean, you know, productivity is not where we want it to be. That's the nicest way for me to say that. I mean, we added I think it was probably closer to 60, not 30, in terms of total heads that got added in a fairly short duration across the entire sales infrastructure. So we added a lot of folks in the first half of this year. We made a lot of territory changes. We introduced a new assay, and the combination of adding a lot of people, changing a lot of territories, and adding a new assay means that our, you know, the efficiency of our sales force in Q2 was not where we want it to be.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

You know, we continue to see improvement, and I'm confident it'll get back to where it was in Q3 or shortly thereafter. But at the end of the day, you know, when you're growing as quick as we are, and you're adding a lot, a bunch of new assays, from time to time, you have these step functions and territorial change, and you got to manage it really well. And, you know, we're a young company, and we're, you know, we're always gonna have some amount of bumps to go.

[Andrew Brackmann, Equity Research Analyst at William Blair]

Okay, thanks for that.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

But you can see the numbers.

[Andrew Brackmann, Equity Research Analyst at William Blair]

Yeah.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

We kind of, as you can see the numbers, we managed through all that and still grew our genomics business to 22%, so we feel good about it.

[Andrew Brackmann, Equity Research Analyst at William Blair]

Perfect. Thanks for that color. And then maybe just on the PurIST algo. First, can you just remind us the importance of that, that test for your portfolio and how it can be a differentiator? But then also you received a PLA code last month, so how are you thinking about obtaining potential reimbursement there or in this to be sort of a, a first in the process to obtain, reimbursement for these AI tests? Thanks.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, it was very exciting to be the, you know, first company to ever kinda have one of these algorithms get a code and get to this point. It's very cool. But I think the way I think about this business and our apps business in general is, you know, we're fortunate that we have a genomics business that's healthy and growing with high margin. We have a data business that's healthy and growing with high margin. And so in the near term, we don't have to rely on our apps business to generate lots of revenue, which is a very good thing, because we, as a country and as a healthcare system, haven't figured out how to pay for AI. We haven't figured out when it should be ordered.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

We haven't figured out how it should be delivered. We haven't figured out how it should be paid for. It's just too new of a space. And so even though we're excited that a lot of these codes are getting issued and physicians want these kind of algorithmic diagnostics, we still have a ways to go before we can figure out how to get it in the guidelines, how to get into routine practice, and how to ultimately get reimbursed for these kind of tests. And I would suspect that's a kind of a multi-year journey.... We also had our, you know, our cardiac algorithm to predict atrial fibrillation was also approved by the FDA, which is amazing. But again, there's not currently a reimbursement pathway for that test. So we need to work on, you know, demonstrating... We've obviously already demonstrated analytical validity.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Now we gotta demonstrate clinical validity and ultimately convince payers that it's in their best interest to pay for these kind of tests. So that's a multi-year journey. I would suspect that we'll continue to bring many algorithms to market, and our hope is to build a very broad portfolio of lots of algorithmic diagnostics that are part of our applications business, and to begin this journey of getting reimbursed, and to the extent we're successful, you know, this could be a very big business one day. I mean, as we've said, historically, it could, you know, it could dwarf the other businesses. But it is a long journey, and, you know, I can't tell you that we're, you know, six months or a year away from seeing light at the end of the tunnel. It's just too new.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

So as we know, we'll let you guys know.

[Operator]

Mark Schappel with Loop Capital Markets, please go ahead.

[Mark Schappel, Managing Director at Loop Capital Markets]

Hi, thank you for taking my question, and congrats on the quarter and the IPO. Eric, kind of building on the earlier question, I was just wondering if you could just talk about the uptake of your emerging AI applications business. I know it's still early days, but maybe just talk about, you know, what you saw in the quarter on that front, and then maybe just talk a little bit more about your efforts and initiatives to kinda get those solutions into the healthcare ecosystem, if you would.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, we have a—it's a really promising story, but it's super tiny in terms of revenue. So the growth rate of our applications business is really high. But it's also relatively small because, again, this stuff, we as a healthcare system haven't figured out how to pay for a lot of these applications. So the core components of our apps business today or applications business today, two of the biggest are, you know, Next, where we're, you know, basically closing care gaps in real time. And then we have a series of algorithms, whether that's, you know, across digital pathology or cardiology, that are also algorithm-based. But if you look, for example, at Next, just take that one product.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

It's an amazing product in that we're able to scan real-time clinical data, relatively real-time clinical data, and see essentially errors or mistakes occurring in real time, where there are guidelines established and there's routine practice, and yet for some reason, some patient has fallen through a care gap. And it happens in healthcare. It's just part of the system. No one's perfect. Using AI and technology to spot those and try to correct them is really powerful in terms of the benefit it provides patients and physicians. How you get paid for that, though, you know, is a bit harder. And so again, like, we're experiencing, I would say, really positive, strong signs of adoption. People want these kind of applications. They're excited to deploy them.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

We're making a ton of progress, but there's still a significant amount of work we have to do as a system, not just Tempus, but anyone who's in AI in healthcare, to get these things paid for at scale. And so that's what takes us from being a high growth but small business to a high growth but big business.

[Mark Schappel, Managing Director at Loop Capital Markets]

Thank you.

[Operator]

Ryan MacDonald with Needham. Please go ahead.

[Ryan MacDonald, Managing Director and Senior Equity Research Analyst at Needham]

Thanks for taking my questions, and congrats on the successful quarter and IPO. Eric, I'm kind of curious, from our healthcare IT side of things, we've actually seen the data space as one that's been really challenged, in terms of the level of investment or spend that a lot of large pharmas and biotechs are willing, you know, to allocate this year from other vendors. Can you just talk about, you know, why you've been able to see so much success, on the data side of the business and how you're differentiating there? And then maybe within the quarter, sort of with the mix of expansions versus net new, logos you brought on in the data business. Thanks.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

Yeah, I mean, we're experiencing really positive momentum and really strong growth in our data business. I think in a very tough background. And I think you highlighted that. I mean, the macro conditions are not great. You have, you know, biotechs, especially smaller biotechs, that have had a really hard time raising capital for the past several years, and big pharma has been really conscientious about its R&D budgets. And so we're growing really quickly and continuing to sign, you know, big deals despite what I think of as a tough environment. So I think I'm hopeful that in the next year or two, when the environment changes, and I believe it will change, I think biotechs will eventually be able to go public again and raise capital. I think we're gonna have some really nice tailwind to that business.

[Eric Lefkofsky, Founder and CEO at Tempus AI]

But at the end of the day, the reason that I think we're growing is it's a very simple equation. You know, if you deliver something of value that people want, that's helping them improve their efforts in early-stage discovery, improve their ability to design, you know, clinical trials, improve their ability to, you know, develop assets more efficiently and bring them to market, get clinical trials closed quicker. Like, these things are all a big deal, and companies are willing to pay money, but you got to demonstrate that value. So in tougher markets, there's kind of like, nice to have and need to have. And Tempus, at least at the present moment, is kind of need to have data for a lot of people, and I think you're right, they're probably cutting back on budgets for nice to have things.

[Ryan MacDonald, Managing Director and Senior Equity Research Analyst at Needham]

Really helpful color. Thanks. Maybe as a follow-up, on the genomic side, you know, given all the positive news that you continue to receive in terms of reimbursement for assays from CMS, can you talk about how you're sort of going about using this in discussions with the commercial payers to potentially improve reimbursement? And, you know, what sort of stage are we at in sort of the progression of those discussions? Thanks.

[Jim Rogers, CFO at Tempus AI]

Yeah. So I think on the commercial payer side, we're certainly on the same journey that kind of all sequencers have kind of followed. Getting CMS coverage is great. That unlocks an FDA approval of some of our assays. That unlocks kind of the ability to have this, the discussions with commercial payers. We have gone in-network with Cigna, Humana, and Aetna. And so we have started to make some progress, still plenty of work to be done. And, you know, we're having those discussions, but they just take a long time to play out. So, you know, over the next few quarters, we'll certainly share progress-

Participants

Executives

• Eric Lefkofsky, Founder and CEO
• Jim Rogers, CFO
• Liz Krutoholow, VP of Investor Relations

Analysts

• Andrew Brackmann, Equity Research Analyst at William Blair
• Dan Arias, Managing Director at Stifel
• Dan Brennan, Sellside Senior Equity Research Analyst at TD Cowen
• John Kim, Director at Bank of America
• Mark Schappel, Managing Director at Loop Capital Markets
• Rachel Vatnsdal, Executive Director of Equity Research at JPMorgan
• Ryan MacDonald, Managing Director and Senior Equity Research Analyst at Needham
• Tejas Savant, Executive Director and Senior Healthcare Equity Analyst at Morgan Stanley