Tempus Q3 2026 Financial Results Call - TEMPUS AI INC

Explicit Guidance:

• 2026 Revenue: Increased to a range of $1.60 billion to $1.605 billion.
• 2026 Adjusted EBITDA: Expected to be approximately $65 million.
• Long-term Growth Rate: Targeting a sustainable 25%+ CAGR for revenue over the long term, with management viewing this as a healthy trajectory for a multi-billion dollar business.
• EBITDA Margin Trajectory: Targeting a reinvestment model where roughly two-thirds of incremental gross profit is reinvested initially, transitioning to a 2/3 drop-through-to-EBITDA model in roughly two years post-acquisition closure; expects EBITDA margin expansion to 7% in 2027 and 11% in 2028.

Business-Segment Outlook:

• Oncology Diagnostics:
  • Unit Growth: Experienced accelerating unit growth of 32% in Q3 2026; expects continued strong growth in 2027-2028.
  • ASP Uplift: Anticipates an ~$80 million ASP uplift in oncology in 2027 following the January 1st pricing update for the XT test (moving to ADLT reimbursement); further ASP increases expected upon final FDA approval for the XF test.
  • MRD (Personalis): Tracking ~3,000 units per quarter; expects to "turn the corner" to positive gross profit per test mid-to-late 2027 once reimbursement covers additional categories (e.g., colorectal cancer), at which point sales efforts will be significantly ramped up.
• Hereditary Cancer:
  • Growth Rate: Lapping excessive growth from 2025; unit growth rates returned to low double digits in Sept/Oct 2026; expects return to stable growth in 2027.
  • Pricing: No material impact expected from PAMA on hereditary cancer rates; ASPs expected to increase slightly over time as rare disease testing constitutes a larger portion of the mix.
• Data and Applications:
  • Growth: Revenue grew 33% YoY in Q3; data licensing segment grew 29%.
  • Revenue Visibility: $192.5 million in additional revenue expected over the next five years from three strategic collaborations (BMS, Pathos/Tempus, Moderna/Merck); pipeline visibility extended through 2029 due to long-term subscription models.
  • Expansion: First major data deal outside oncology secured (Alzheimer's), signaling expansion into cardiology, immunology, and neurology; expects this to drive a new round of growth for the data business.
• Backlog/PIPE: Over $550 million in bookings recorded in 2026; deal flow has shifted from episodic to long-term strategic collaborations (5-year terms).

Market and Competitive Outlook:

• Market Share: Anticipates becoming #1 or #2 in the MRD (Minimal Residual Disease) category, leveraging a "best-in-class" assay and broad distribution network.
• Competitive Position: Maintains #1 or #2 positions in solid tumor profiling, liquid biopsy, and hereditary cancer profiling; expects to extend this leadership to MRD.
• Volume Trends: Liquid biopsy volume growth is expected to outperform solid tumor profiling in late 2026/2027 due to trends in concurrent testing for metastatic patients and serial testing for earlier-stage indications.
• Clinical Trial Matching (TIME): Pivot from consumer marketplace to enterprise-focused, high-barrier-to-entry network; not expected to reach $1B scale but will grow as a premium asset tied to major pharma partners.
• Pricing Power: Anticipates realized oncology pricing to reach ~$2,600 over the next few years, significantly above current levels.

Macro / Industry Outlook:

• Reimbursement Landscape: PAMA rate cuts expected to have minimal impact on hereditary ASPs; FDA approvals for XT and XF tests are expected to drive significant ASP increases in 2027-2028.
• Clinical Trends: Strong momentum in concurrent testing (solid + liquid) and serial testing to identify driver mutations and guide therapy changes, driving liquid volume growth.
• AI & Data Demand: Biopharma demand for real-world data and AI modeling capacity is increasing; customers are migrating from one-time data licenses to sticky, long-term subscriptions with integrated GPU clusters.
• Economic Conditions: Management expresses high confidence in operating cash flow and liquidity to fund growth and the Personalis acquisition even if investor appetite for AI companies weakens, citing diversified revenue streams.

Strategic Initiatives:

• Personalis Acquisition:
  • Status: Regulatory review cleared; shareholder meeting scheduled for November 30, 2026.
  • Integration: Personalis tumor-informed MRD assay (NEXT) has been the exclusive distributor of since 2023; full integration expected to accelerate commercial adoption and round out the portfolio.
  • Financial Impact: Will absorb short-term burn from Personalis; expected to unlock significant revenue growth in late 2027-2028 as the MRD business turns positive per-test gross profit.
• Strategic Collaborations:
  • BMS: $137.5 million over 5 years for oncology data and models.
  • Pathos/Tempus: $55 million over 5 years for Alzheimer's datasets.
  • Moderna/Merck: Collaboration for commercialization of individualized neoantigen therapy (INT).
• Capacity & Infrastructure:
  • Data Scale: Amassed >600 petabytes of data; added >50 petabytes in Q3 2026.
  • Distribution: Connected to ~8,000 providers.
  • AI Infrastructure: Offering private GPU clusters (8, 16, 32, 64 GPUs) to clients for in-environment model building to increase stickiness.

Risks and Headwinds to Outlook:

• MRD Profitability Timing: Full ramp of MRD sales efforts is contingent on achieving positive gross profit per test, which depends on reimbursement coverage expansion; timing uncertain but expected mid-2027 to late 2027.
• Acquisition Integration: Short-term EBITDA will be depressed by the need to absorb Personalis's current losses.
• Growth Sustainability: Law of large numbers applies as revenue base expands; maintaining 25%+ CAGR will require significant absolute dollar additions ($500M-$1B annually).
• CRO Business Decline: AI disruption in administrative/logistic components of CRO work may lead to further de-emphasis of pure CRO services.
• Market Saturation: Potential for competitive dynamics to shift if other companies build comparable data/AI infrastructure, though management views current "moat" as durable.

Management Tone on the Future:

• Confidence: Highly confident ("more convinced than ever," "strongest position we've been in for a long time") regarding long-term growth, the durability of the data moat, and the ability to achieve 25%+ CAGR.
• Pivot Narrative: Emphasizes transition from a "growth at all costs" model to one generating meaningful EBITDA, with a disciplined reinvestment strategy (2/3 reinvest, 1/3 to bottom line) shifting to 1/3 reinvest, 2/3 to bottom line as scale increases.
• Strategic Focus: Shift from episodic data deals to sticky, long-term strategic partnerships and integrated AI/analytic platforms.
• Hedges: Acknowledges that MRD ramp and ASP uplifts are time-bound events (mid-2027 onwards) rather than immediate inflection points.

Miscellaneous:

• Data Diversity: >80% of the 50 million patient dataset is outside oncology; >90% of oncology data is sourced via partnerships rather than in-house sequencing, ensuring diversified data inflow.
• Investor Access: Introduced a new mechanism for retail investor questions via the Robinhood platform.